TITAN INTERNATIONAL, INC. FORM 10-Q 9-30-06

0000899751-06-000070.txt : 20061030 0000899751-06-000070.hdr.sgml : 20061030 20061027180140 ACCESSION NUMBER: 0000899751-06-000070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061030 DATE AS OF CHANGE: 20061027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TITAN INTERNATIONAL INC CENTRAL INDEX KEY: 0000899751 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 363228472 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12936 FILM NUMBER: 061169980 BUSINESS ADDRESS: STREET 1: 2701 SPRUCE ST CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172286011 MAIL ADDRESS: STREET 1: 2701 SPRUCE ST CITY: QUINCY STATE: IL ZIP: 62301 FORMER COMPANY: FORMER CONFORMED NAME: TITAN WHEEL INTERNATIONAL INC DATE OF NAME CHANGE: 19930403 10-Q 1 form10q.htm TITAN INTERNATIONAL, INC. FORM 10-Q 9-30-06 TITAN INTERNATIONAL, INC. FORM 10-Q 9-30-06

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended: September 30, 2006

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-12936

TITAN INTERNATIONAL, INC.

(Exact name of Registrant as specified in its Charter)

Illinois		36-3228472
(State of Incorporation)		(I.R.S. Employer Identification No.)

2701 Spruce Street, Quincy, IL 62301

(Address of principal executive offices, including Zip Code)

(217) 228-6011

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer o Accelerated filer x Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

		Shares Outstanding at
Class		October 26, 2006

Common stock, no par value per share		19,786,792

TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS

		Page
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005	1

	Consolidated Condensed Balance Sheets as of September 30, 2006, and December 31, 2005	2

	Consolidated Condensed Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2006	3

	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005	4

	Notes to Consolidated Condensed Financial Statements	5-16

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17-28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

Part II.	Other Information

Item 1.	Legal Proceedings	30

Item 6.	Exhibits	30

	Signatures	30

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TITAN INTERNATIONAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands, except earnings per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005
Net sales	$	156,120		$	102,712		$	513,891		$	373,550
Cost of sales		139,040			91,739			443,255			315,994
Gross profit		17,080			10,973			70,636			57,556
Selling, general & administrative expenses		10,358			7,418			30,312			24,256
Royalty expense		1,113			0			3,952			0
Idled assets marketed for sale depreciation		902			1,312			2,722			3,992
Income from operations		4,707			2,243			33,650			29,308
Interest expense		(4,565	)		(1,781	)		(11,997	)		(6,723	)
Noncash convertible debt conversion charge		0			0			0			(7,225	)
Other income (expense)		671			(91	)		2,820			1,223
Income before income taxes		813			371			24,473			16,583
Provision (benefit) for income taxes		325			(811	)		9,789			0
Net income	$	488		$	1,182		$	14,684		$	16,583
Earnings per common share:
Basic	$	.02		$	.06		$	.75		$	.94
Diluted		.02			.06			.65			.83
Average common shares outstanding:
Basic		19,731			19,422			19,670			17,570
Diluted		20,060			19,617			26,027			25,298

See accompanying Notes to Consolidated Condensed Financial Statements.

TITAN INTERNATIONAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share data)

	September 30,			December 31,
Assets	2006			2005
Current assets
Cash and cash equivalents	$	281		$	592
Accounts receivable (net allowance of $6,517 and $5,654, respectively)		97,426			47,112
Inventories		172,485			122,692
Deferred income taxes		11,775			20,141
Prepaid and other current assets		19,646			15,630
Total current assets		301,613			206,167

Property, plant and equipment, net		171,108			140,382
Idled assets marketed for sale		15,215			18,267
Investment in Titan Europe Plc		49,196			48,467
Goodwill		11,702			11,702
Other assets		17,897			15,771

Total assets	$	566,731		$	440,756

Liabilities and Stockholders’ Equity
Current liabilities
Short-term debt (including current portion of long-term debt)	$	2,255		$	11,995
Accounts payable		49,580			24,435
Other current liabilities		37,392			11,753
Total current liabilities		89,227			48,183

Long-term debt		258,590			190,464
Deferred income taxes		13,837			13,581
Other long-term liabilities		18,382			20,715
Total liabilities		380,036			272,943

Stockholders’ equity
Common stock (no par, 60,000,000 shares authorized, 30,577,356 issued)		30			30
Additional paid-in capital		257,027			255,299
Retained earnings		46,442			32,053
Treasury stock (at cost, 10,819,024 and 11,074,150 shares, respectively)		(97,526	)		(99,817	)
Accumulated other comprehensive loss		(19,278	)		(19,752	)
Total stockholders’ equity		186,695			167,813

Total liabilities and stockholders’ equity	$	566,731		$	440,756

See accompanying Notes to Consolidated Condensed Financial Statements.

TITAN INTERNATIONAL, INC.

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(All amounts in thousands, except share data)

	Number of common shares		Common Stock		Additional paid-in capital		Retained earnings			Treasury stock			Accumulated other comprehensive income (loss)			Total

Balance January 1, 2006		19,503,206	$	30	$	255,299	$	32,053		$	(99,817	)	$	(19,752	)	$	167,813

Comprehensive income:
Net income								14,684									14,684
Unrealized gain on investment, net of tax														474			474
Comprehensive income								14,684						474			15,158
Dividends paid on common stock								(295	)								(295	)
Exercise of stock options		246,420				1,645					2,213						3,858
Issuance of treasury stock
under 401(k) plan		8,706				83					78						161

Balance September 30, 2006		19,758,332	$	30	$	257,027	$	46,442		$	(97,526	)	$	(19,278	)	$	186,695

See accompanying Notes to Consolidated Condensed Financial Statements.

TITAN INTERNATIONAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

	Nine months ended September 30,
	2006			2005
Cash flows from operating activities:
Net income	$	14,684		$	16,583
Adjustments to reconcile net income to net cash
(used for) provided by operating activities (net of the
effects of acquisitions):
Depreciation and amortization		19,460			15,854
Noncash convertible debt conversion charge		0			7,225
Deferred income tax provision		8,745			0
Excess tax benefit from stock options exercised		(379	)		0
(Increase) decrease in current assets:
Accounts receivable		(50,314	)		(3,772	)
Inventories		(38,390	)		5,717
Prepaid and other current assets		(3,016	)		(1,019	)
Increase (decrease) in current liabilities:
Accounts payable		25,145			(3,960	)
Other current liabilities		15,739			1,637
Other, net		(5,036	)		(2,646	)
Net cash (used for) provided by operating activities		(13,362	)		35,619

Cash flows from investing activities:
Acquisition of off-the-road (OTR) assets		(44,000	)		0
Capital expenditures		(4,844	)		(3,083	)
Other		36			388
Net cash used for investing activities		(48,808	)		(2,695	)

Cash flows from financing activities:
Proceeds (payments) on revolving credit facility, net		68,200			(33,900	)
Payments of debt		(9,814	)		(177	)
Proceeds from exercise of stock options		3,453			1,185
Excess tax benefit from stock options exercised		379			0
Payment of financing fees		(225	)		(500	)
Dividends paid		(295	)		(261	)
Other, net		161			193
Net cash provided by (used for) financing activities		61,859			(33,460	)

Net decrease in cash and cash equivalents		(311	)		(536	)

Cash and cash equivalents at beginning of period		592			1,130

Cash and cash equivalents at end of period	$	281		$	594

See accompanying Notes to Consolidated Condensed Financial Statements.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

1. ACCOUNTING POLICIES

In the opinion of Titan International, Inc. (Titan or the Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments that are normal and recurring in nature and necessary to fairly state the Company’s financial position as of September 30, 2006, the results of operations for the three and nine months ended September 30, 2006 and 2005, and cash flows for the nine months ended September 30, 2006 and 2005.

Accounting policies have continued without significant change and are described in the Summary of Significant Accounting Policies contained in the Company’s 2005 Annual Report on Form 10-K. These interim financial statements have been prepared pursuant to the Securities and Exchange Commission’s rules for Form 10-Q’s and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2005 Annual Report on Form 10-K.

Reclassification

Certain amounts from prior years have been reclassified to conform to the current year’s presentation.

2. ACQUISITIONS

Acquisition of Goodyear’s North American Farm Tire Assets

On December 28, 2005, Titan Tire Corporation, a subsidiary of Titan International, Inc., acquired The Goodyear Tire & Rubber Company’s North American farm tire assets. Titan Tire purchased the assets of Goodyear’s North American farm tire business for approximately $100 million in cash proceeds. The assets purchased include Goodyear’s North American plant, property and equipment located in Freeport, Illinois, and Goodyear’s North American farm tire inventory. This acquisition expanded Titan’s product offering into Goodyear branded farm tires and added the manufacturing capacity of the Freeport, Illinois, facility.

Acquisition of Continental’s OTR Assets

On July 31, 2006, Titan Tire Corporation of Bryan, a subsidiary of Titan International, Inc., acquired the off-the-road (OTR) tire assets of Continental Tire North America, Inc. (Continental) in Bryan, Ohio. Titan Tire Corporation of Bryan purchased the assets of Continental’s OTR tire facility for approximately $53 million in cash proceeds. The assets purchased included Continental’s OTR plant, property and equipment located in Bryan, Ohio, of approximately $41 million, inventory of approximately $11 million, and other current asset of approximately $1 million. This acquisition expanded Titan’s product offering into larger earthmoving, construction and mining tires and added the manufacturing capacity of the Bryan, Ohio, facility.

The initial allocation of the Continental OTR asset acquisition was as follows:

Inventory	$	10,500
Prepaid and other current assets		1,000
Property, plant and equipment		41,400
	$	52,900

As a result of the July 31, 2006, recent transaction date, the Company has not completed its final allocation of the purchase price to the acquired assets. However, the Company recorded a preliminary allocation for purchased intangible assets of approximately $1 million and a preliminary acquired warranty liability of approximately $1 million. Any changes to the acquisition allocation will be made by July, 2007.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Pro forma financial information

The following unaudited pro forma financial information gives effect to the acquisition of Goodyear’s North American farm tire assets and the acquisition of Continental’s OTR assets as if the acquisitions had taken place on January 1, 2005. The pro forma information for the Freeport, Illinois, facility was derived from a carve-out of The Goodyear Tire & Rubber Company’s historical accounting records. The pro forma information for the Bryan, Ohio, facility was derived from a carve-out of Continental’s OTR historical accounting records.

Pro forma information for the three and nine months ended is as follows (in thousands, except per share data):

	Three months ended				Nine months ended
	September 30,				September 30,
	2006		2005		2006		2005
Net sales	$	167,883	$	195,070	$	596,233	$	649,858
Income before income taxes		2,700		4,051		37,685		24,166
Net income		1,620		3,382		22,611		21,110
Diluted earnings per share		.08		.17		.95		1.01

The pro forma information is presented for illustrative purposes only and may not be indicative of the results that would have been obtained had the acquisitions actually occurred on January 1, 2005, nor is it necessarily indicative of Titan’s future consolidated results of operations or financial position.

3. INVENTORIES

Inventories consisted of the following (in thousands):

	September 30,			December 31,
	2006			2005
Raw materials	$	59,044		$	42,511
Work-in-process		12,391			10,939
Finished goods		103,643			74,793
		175,078			128,243
Reduction to LIFO basis		(2,593	)		(5,551	)
	$	172,485		$	122,692

Inventories were $172.5 million and $122.7 million at September 30, 2006, and December 31, 2005, respectively. At September 30, 2006, cost is determined using the first-in, first-out (FIFO) method for approximately 77% of inventories and the last-in, first-out (LIFO) method for approximately 23% of the inventories. At December 31, 2005, the FIFO method was used for approximately 71% of the inventories and LIFO was used for approximately 29% of the inventories. The LIFO reduction changed primarily as a result of fluctuations within the composition of LIFO inventory layers. Included in the inventory balances were reserves for slow-moving and obsolete inventory of $3.0 million and $2.7 million at September 30, 2006, and December 31, 2005, respectively.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following (in thousands):

	September 30,			December 31,
	2006			2005
Land and improvements	$	2,621		$	2,521
Buildings and improvements		73,117			63,572
Machinery and equipment		234,298			202,598
Tools, dies and molds		55,856			51,859
Construction-in-process		2,699			2,284
		368,591			322,834
Less accumulated depreciation		(197,483	)		(182,452	)
	$	171,108		$	140,382

Property, plant and equipment, net was $171.1 million and $140.4 million at September 30, 2006, and December 31, 2005, respectively. The property, plant and equipment balances do not include idled assets marketed for sale of $15.2 million at September 30, 2006, and $18.3 million at December 31, 2005. Depreciation on fixed assets for the nine months ended September 30, 2006 and 2005, totaled $14.9 million and $10.6 million, respectively. In addition, depreciation on idled assets marketed for sale was $2.7 million and $4.0 million for the nine months ended September 30, 2006 and 2005, respectively.

5. IDLED ASSETS MARKETED FOR SALE

Idled assets marketed for sale consisted of the following (in thousands):

	September 30,		December 31,
	2006		2005
Carrying value of idled assets	$	15,215	$	18,267

The idled assets marketed for sale are being depreciated in accordance with SFAS No. 144. Depreciation on these idled assets was $2.7 million and $4.0 million for the nine months ended September 30, 2006 and 2005, respectively.

During the first nine months of 2006, approximately $0.3 million of idled assets were placed back into service. The idled assets balance at September 30, 2006, was $15.2 million. Included in the September 30, 2006, balance are land and a building at the Company’s idled facility in Greenwood, South Carolina, totaling $1.8 million. Machinery and equipment located at the Company’s idled facilities in Brownsville, Texas, and Natchez, Mississippi, totaling $13.4 million, are also included in idled assets marketed for sale at September 30, 2006. With the assistance of independent appraisals, the Company has concluded that the fair market values of the machinery and equipment at these facilities exceed their respective carrying values. The Company has had inquiries regarding these assets and continues the marketing process for sale of these assets. However, at this time, there are no pending sales contracts related to these assets. As a result of the Goodyear North American farm tire asset acquisition and the Continental OTR asset acquisition, the Company is considering placing certain assets of the idled machinery and equipment back into service at the Des Moines, Iowa, Freeport, Illinois, and Bryan, Ohio facilities.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

6. INVESTMENT IN TITAN EUROPE PLC

Investment in Titan Europe Plc consisted of the following (in thousands):

	September 30,		December 31,
	2006		2005
Investment in Titan Europe Plc	$	49,196	$	48,467

As of September 30, 2006, the Company owns a 15.4% stock ownership interest in Titan Europe Plc. In accordance with SFAS No. 115, the Company records the Titan Europe Plc investment as an available-for-sale security and reports the investment at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of comprehensive income in stockholders’ equity. The fair value of the Company’s investment in Titan Europe Plc was $49.2 million at September 30, 2006, and $48.5 million at December 31, 2005. Titan Europe Plc is publicly traded on the AIM market in London, England.

The Company has a note receivable from Titan Europe Plc, which is classified within other assets on the consolidated condensed balance sheet. The balance of this note was $5.6 million at September 30, 2006 and $5.2 million at December 31, 2005. The increase in the note receivable balance resulted from currency exchange fluctuations.

7. GOODWILL

The carrying amount of goodwill by segment consisted of the following (in thousands):

	September 30,		December 31,
	2006		2005
Agricultural segment	$	6,912	$	6,912
Earthmoving/construction segment		3,552		3,552
Consumer segment		1,238		1,238
	$	11,702	$	11,702

The Company reviews goodwill to assess recoverability from future operations during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. No goodwill charges were recorded in the first nine months of 2006 or 2005. There can be no assurance that future goodwill tests will not result in a charge to earnings.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

8. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):

	September 30,		December 31,
	2006		2005
Revolving credit facility	$	167,300	$	99,100
Senior unsecured convertible notes		81,200		81,200
Industrial revenue bonds and other		12,345		22,159
		260,845		202,459
Less: Amounts due within one year		2,255		11,995
	$	258,590	$	190,464

Aggregate maturities of long-term debt at September 30, 2006, were as follows (in thousands):

October 1 - December 31, 2006	$	2,182
2007		98
2008		167,865
2009		81,200
2010		9,500
Thereafter		0
	$	260,845

Revolving credit facility

The Company’s $250 million revolving credit facility with agent LaSalle Bank National Association has a 2008 termination date and is collateralized by a first priority security interest in certain assets of Titan and its domestic subsidiaries. The borrowings under the facility bear interest at a floating rate of either prime rate plus 1.25% or LIBOR plus 2.75%. Interest rates at September 30, 2006, range from approximately 8% to 9.75%. The facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants. The Company was in compliance with these covenants and restrictions as of September 30, 2006.

Credit Facility Amendment

On June 28, 2006, the Company entered into a contingent amendment to its revolving credit facility with LaSalle Bank National Association. The amendment became effective on July 31, 2006, upon the closing of Titan’s acquisition of the assets of the off-the-road (OTR) tire manufacturing facility in Bryan, Ohio, from Continental Tire North America. The amendment increased the revolving loan availability from $200 million to $250 million.

Senior unsecured convertible notes

The $81.2 million of 5.25% senior unsecured convertible notes are due 2009. These notes are convertible by the holders into shares of the Company’s stock at any time on or before maturity at a conversion rate of 74.0741 shares per $1,000 principal amount of notes ($13.50 per common share), subject to adjustment. This conversion rate would convert all of the notes into approximately 6.0 million shares of the Company’s common stock.

Industrial revenue bonds and other

Other debt primarily consists of industrial revenue bonds, loans from local and state entities, and other long-term notes. Maturity dates on this debt range from one to four years and interest rates ranged from 3% to 9%. Other debt includes the balance due on the Brownsville building of $2.2 million and $11.9 million at September 30, 2006, and December 31, 2005, respectively. The entire debt on the Brownsville building is classified as short-term debt.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

9. WARRANTY COSTS

The Company provides limited warranties on workmanship on its products in all market segments. The Company’s products have a limited warranty that ranges from zero to ten years, with certain products being prorated after the first year. The Company calculates a provision for warranty expense based on past warranty experience. The warranty amount increases in the first nine months of 2006 were related to the Company’s significantly higher sales levels and the acquisitions of Goodyear’s North American farm tire assets and Continental’s OTR assets. Warranty accruals are included as a component of other current liabilities on the Consolidated Condensed Balance Sheets. Changes in the warranty liability consisted of the following (in thousands):

	2006			2005
Warranty liability, January 1	$	1,838		$	1,762
Provision for and assumption of warranty liabilities		4,851			1,839
Warranty payments made		(2,759	)		(1,658	)
Warranty liability, September 30	$	3,930		$	1,943

10. EMPLOYEE BENEFIT PLANS

The Company has two frozen defined benefit pension plans and one defined benefit plan that purchased a final annuity settlement in 2002. The components of net periodic pension cost consisted of the following (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005
Interest cost	$	983		$	1,039		$	2,949		$	3,117
Expected return on assets		(1,168	)		(1,202	)		(3,504	)		(3,606	)
Amortization of unrecognized prior service cost		34			34			102			102
Amortization of unrecognized deferred taxes		(14	)		(14	)		(42	)		(42	)
Amortization of net unrecognized loss		462			439			1,386			1,317
Net periodic pension cost	$	297		$	296		$	891		$	888

During the nine months ended September 30, 2006, the Company contributed $3.1 million to the frozen defined benefit pension plans. The Company expects to contribute approximately $0.9 million to the pension plans during the remainder of 2006.

11. LEASE COMMITMENTS

The Company leases certain buildings and equipment under operating leases. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company.

At September 30, 2006, future minimum commitments under noncancellable operating leases with initial or remaining terms of one year were as follows (in thousands):

October 1 - December 31, 2006	$	935
2007		2,561
2008		1,509
2009		946
2010		646
Thereafter		338
Total future minimum lease payments	$	6,935

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

12. SEGMENT INFORMATION

The table below presents information about certain revenues and income from operations used by the chief operating decision maker of the Company for the three and nine months ended September 30, 2006 and 2005 (in thousands):

	Three months ended						Nine months ended
	September 30, 2006						September 30, 2006
	2006			2005			2006			2005
Revenues from external customers
Agricultural	$	89,014		$	64,595		$	329,708		$	244,873
Earthmoving/construction		56,683			31,303			117,489			106,165
Consumer ^(a)		10,423			6,814			66,694			22,512
Consolidated totals	$	156,120		$	102,712		$	513,891		$	373,550


Income from Operations
Agricultural	$	2,445		$	4,221		$	34,412		$	29,460
Earthmoving/construction		8,643			3,485			18,344			15,978
Consumer		401			244			2,076			1,798
Reconciling items ^(b)		(6,782	)		(5,707	)		(21,182	)		(17,928	)
Consolidated totals	$	4,707		$	2,243		$	33,650		$	29,308

Assets by segment were as follows (in thousands):

	September 30,		December 31,
Total assets		2006		2005
Agricultural segment	$	296,743	$	239,581
Earthmoving/construction segment		177,100		89,241
Consumer segment		27,483		22,963
Reconciling items ^(c)		65,405		88,971
Consolidated totals	$	566,731	$	440,756

(a)	Sales to The Goodyear Tire & Rubber Company for the three and nine months ended September 30, 2006, the majority of which are included in the consumer segment, were approximately $6 million and approximately $44 million, respectively.

(b)	Represents corporate expenses and depreciation and amortization expense related to property, plant and equipment carried at the corporate level.

(c)	Represents property, plant and equipment and other corporate assets.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

13. ROYALTY EXPENSE

The December 2005 Goodyear North American farm tire asset acquisition included a license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America. Royalty expenses recorded for the three and nine months ended September 30, 2006, were $1.1 million and $4.0 million, respectively. No royalty expense was recorded in the three and nine months ended September 30, 2005, as this license agreement was not yet in place during those respective periods of time.

14. NONCASH CONVERTIBLE DEBT CONVERSION CHARGE

In June 2005, Titan finalized a private transaction in which the Company issued 3,022,275 shares of common stock in exchange for the cancellation of $33.8 million principal amount of the Company’s outstanding 5.25% senior convertible notes due 2009, as proposed to the Company by certain note holders. The Company recognized a noncash charge of $7.2 million in connection with this exchange in accordance with SFAS No. 84, “Induced Conversions of Convertible Debt,” during the second quarter of 2005. This charge does not reflect $0.8 million of interest previously accrued on the notes. The exchange resulted in an increase to additional paid-in capital of approximately $41.0 million.

15. OTHER INCOME

Other income consisted of the following (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005
Interest income	$	162		$	83		$	1,518		$	222
Dividend income - Titan Europe Plc		470			0			1,281			0
Foreign exchange gain (loss)		232			(239	)		640			(1,139	)
Equity income - Titan Europe Plc		0			322			0			2,360
Other expense		(193	)		(257	)		(619	)		(220	)
	$	671		$	(91	)	$	2,820		$	1,223

Interest income for the nine months ended September 30, 2006, includes $1.1 million of interest income received in March 2006 regarding the final calculation of interest earned associated with restricted cash previously on deposit for the Dyneer legal case. As a result of decreased ownership percentage in Titan Europe Plc, effective December 2005, the Company no longer uses the equity method to account for its interest in Titan Europe Plc.

16. INCOME TAXES

The Company recorded income tax expense of $0.3 million and $9.8 million for the three and nine months ended September 30, 2006, respectively, as compared to an income tax benefit of $0.8 million and income tax expense of $0 for the three and nine months ended September 30, 2005. During the nine months ended September 30, 2005, the Company’s income tax expense differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to income before income taxes primarily as a result of the partial reversal of the valuation allowance recorded against the Company’s domestic net deferred income tax asset balance. As a result of several years of previous losses, the Company had recorded a full valuation allowance against its net deferred income tax asset, consistent with the Company’s accounting policies. During the fourth quarter of 2005, based upon anticipated utilization of net operating loss carryforwards in connection with its future federal income tax filings, the Company reversed the remainder of this valuation allowance. As a result of this reversal, the Company’s effective income tax rate was 40% for the nine months ended September 30, 2006, as compared to a 0% effective income tax rate for the nine months ended September 30, 2005.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

17. EARNINGS PER SHARE

Earnings per share (EPS) are as follows (amounts in thousands, except per share data):

	Three months ended,
	September 30, 2006						September 30, 2005
	Net Income		Weighted average shares		Per share amount		Net Income		Weighted average shares		Per share amount
Basic EPS	$	488		19,731	$	.02	$	1,182		19,422	$	.06
Effect of stock options		0		329				0		195
Effect of convertible notes		0		0				0		0
Diluted EPS	$	488		20,060	$	.02	$	1,182		19,617	$	.06

	Nine months ended,
	September 30, 2006					September 30, 2005
		Net Income	Weighted average shares		Per share amount		Net Income	Weighted average shares		Per share amount
Basic EPS	$	14,684	19,670	$	.75	$	16,583	17,570	$	.94
Effect of stock options		0	342				0	200
Effect of convertible notes		2,156	6,015				4,503	7,528
Diluted EPS	$	16,840	26,027	$	.65	$	21,086	25,298	$	.83

The impact of stock options with exercise prices greater than the average market price of the Company’s common shares has been excluded, as the effect would have been antidilutive.

18. COMPREHENSIVE INCOME (LOSS)

Comprehensive loss for the third quarter of 2006 totaled $(1.4) million compared to comprehensive income of $0.5 million in the third quarter of 2005. Comprehensive loss for the third quarter of 2006 included net income of $0.5 million and unrealized loss on investments of $(1.9) million, while comprehensive income for the third quarter of 2005 included net income of $1.2 million and the effect of foreign currency translation adjustments of $(0.7) million. Comprehensive income for the nine months ended September 30, 2006, was $15.2 million compared to $14.0 million in 2005. Comprehensive income for the nine months ended September 30, 2006, included net income of $14.7 million and unrealized gain on investments of $0.5 million, while comprehensive income for the nine months ended September 30, 2005, included net income of $16.6 million and the effect of foreign currency translation adjustments of $(2.6) million.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

19. STOCK OPTION PLANS

Stock Incentive Plan

The Company adopted the 1993 Stock Incentive Plan to provide grants of stock options as a means of attracting and retaining qualified employees for the Company. There will be no additional issuance of stock options under this plan, as it has expired. Options previously granted are fully vested and expire 10 years from the grant date of the option.

Non-Employee Director Stock Option Plan

The Company adopted the 1994 Non-Employee Director Stock Option Plan to provide for grants of stock options as a means of attracting and retaining qualified independent directors for the Company. There will be no additional issuance of stock options under this plan, as it has expired. Options previously granted are fully vested and expire 10 years from the grant date of the option.

2005 Equity Incentive Plan

The Company adopted the 2005 Equity Incentive Plan (the Plan) to provide stock options as a means of attracting and retaining qualified independent directors and employees for the Company. A total of 2.1 million shares are reserved for issuance under the Plan. The exercise price of stock options may not be less than the fair market value of the common stock on the date of the grant. The vesting and term of each option is set by the Board of Directors. In 2005, a total of 890,380 options were granted under this plan. Options granted are fully vested and expire 10 years from the grant date of the option.

On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment.” Prior to adopting the provisions of SFAS No. 123(R), the Company applied the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations in accounting for the plans.

The Company implemented SFAS No. 123(R) using the modified prospective transition method. Under this method, Titan is to recognize share-based compensation for all current awards and for the unvested portion of previous awards based on grant date fair values. No new awards were issued during the first nine months of 2006 and all previous awards were fully vested as of the end of the prior period ended December 31, 2005. Therefore, no share-based compensation expense has been recorded in the first nine months of 2006.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based compensation for periods prior to adopting SFAS No. 123(R) (amounts in thousands, except earnings per share data):

	Three months ended			Nine months ended
	September 30,			September 30,
	2005			2005
Net income - as reported	$	1,182		$	16,583
Deduct: Total stock-based compensation
expense determined under fair value method
for all awards, net of related tax effects		(387	)		(649	)
Pro forma net income	$	795		$	15,934
Earnings per share:
Basic - as reported	$	.06		$	.94
Basic - pro forma		.04			.91
Diluted - as reported	$	.06		$	.83
Diluted - pro forma		.04			.81

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

The following is a summary of activity in the stock option plans during the first nine months of 2006:

	Shares Subject to Option			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value (a) (in 000’s)
Outstanding, December 31, 2005		1,547,510		$	13.53
Granted		0			-
Exercised		(246,420	)		14.01
Canceled/Expired		(15,260	)		16.00
Outstanding, September 30, 2006		1,285,830		$	13.41		6.2 years	$	6,005
Exercisable, September 30, 2006		1,285,830		$	13.41		6.2 years	$	6,005

(a)	The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The total intrinsic value of options exercised during the first nine months of 2006 was $0.9 million. Cash received from the exercise of options was $3.5 million for the first nine months of 2006. The tax benefit realized for the tax deductions from options exercised was $0.4 million for the first nine months of 2006.

The Company currently uses treasury shares to satisfy any stock option exercises. At September 30, 2006, the Company had 10.8 million shares in treasury stock.

20. RECENT DEVELOPMENTS

Termination of Cash Merger Discussions

On October 11, 2005, the Company received an offer from One Equity Partners LLC (One Equity), a private equity affiliate of JPMorgan Chase & Co., indicating One Equity’s interest in acquiring Titan International, Inc. in a cash merger for $18.00 per share of Titan common stock. On April 12, 2006, Titan and One Equity announced the termination of discussions regarding the proposed cash merger. On April 17, 2006, the Company’s Board of Directors met and thanked the Special Committee, which had been formed to pursue discussions regarding One Equity’s proposed cash merger, for all their efforts expended and agreed that their Special Committee responsibilities have been completed.

21. LITIGATION

The Company is a party to routine legal proceedings arising out of the normal course of business. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes at this time that none of these actions, individually or in the aggregate, will have a material adverse affect on the consolidated financial condition, results of operations or cash flows of the Company. However, due to the difficult nature of predicting future legal claims, the Company cannot anticipate or predict the material adverse effect on its consolidated financial condition, results of operations or cash flows as a result of efforts to comply with or its liabilities pertaining to legal judgments.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

22. RECENTLY ISSUED ACCOUNTING STANDARDS

Financial Accounting Standards Board Interpretation Number 48

In July 2006, Financial Accounting Standards Board Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109,” was issued. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure requirements for uncertain tax positions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company is evaluating the effect the adoption of this interpretation will have on its consolidated financial position, results of operations and cash flows.

Statement of Financial Accounting Standards Number 157

In September 2006, Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” was issued. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is evaluating the effect the adoption of this standard will have on its consolidated financial position, results of operations and cash flows.

Statement of Financial Accounting Standards Number 158

In September 2006, SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” was issued. This statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The Company is evaluating the effect the adoption of this standard will have on its consolidated financial position, results of operations and cash flows.

Staff Accounting Bulletin Number 108

In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 requires that public companies utilize a “dual-approach” when assessing the quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 is effective for annual financial statements for fiscal years ending after November 15, 2006. The Company is evaluating the effect the adoption of this guidance will have on its consolidated financial position, results of operations and cash flows.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of these financial statements with a narrative from the perspective of the management of Titan International, Inc. (Titan or the Company) on Titan’s financial condition, results of operations, liquidity and other factors which may affect the Company’s future results. The MD&A in this quarterly report should be read in conjunction with the MD&A in Titan’s 2005 annual report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2006.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements, including statements regarding, among other items:

·	Anticipated trends in the Company’s business

·	Future expenditures for capital projects

·	The Company’s ability to continue to control costs and maintain quality

·	Ability to meet financial covenants and conditions of loan agreements

·	The Company’s business strategies, including its intention to introduce new products

·	Expectations concerning the performance and commercial success of the Company’s existing and new products

·	The Company’s intention to consider and pursue acquisitions and divestitures

Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company’s expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company’s control.

Actual results could differ materially from these forward-looking statements as a result of certain factors, including:

·	Changes in the Company’s end-user markets as a result of world economic or regulatory influences

·	Fluctuations in currency translations

·	Changes in the competitive marketplace, including new products and pricing changes by the Company’s competitors

·	Availability and price of raw materials

·	Levels of operating efficiencies

·	Actions of domestic and foreign governments

·	Results of investments

·	Ability to secure financing at reasonable terms

Any changes in such factors could lead to significantly different results. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this document will in fact transpire.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

OVERVIEW

Titan International, Inc. and its subsidiaries (Titan or the Company) are leading manufacturers of wheels, tires and assemblies for off-highway vehicles used in the agricultural, earthmoving/construction and consumer markets. Titan’s earthmoving/construction market also includes products supplied to the U.S. government, while the consumer market includes products for all-terrain vehicles (ATVs) and recreational/utility trailer applications. Titan manufactures both wheels and tires for the majority of these market applications, allowing the Company to provide the value-added service of delivering complete wheel and tire assemblies. The Company offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.

The Company’s major OEM customers include large manufacturers of off-highway equipment such as Deere & Company, CNH Global N.V., Caterpillar Inc., AGCO Corporation, and Kubota Corporation, in addition to many other off-highway equipment manufacturers. The Company distributes products to OEMs, independent and OEM-affiliated dealers, and through a network of distribution facilities.

The Company recorded sales of $156.1 million for the third quarter of 2006, which were 52% higher than the third quarter 2005 sales of $102.7 million. The significantly higher sales level was attributed to the expanded agricultural product offering of Goodyear branded farm tires and the expanded earthmoving, construction and mining product offering of Continental & General branded off-the-road (OTR) tires. These product offerings came with the added manufacturing capacity from the Freeport, Illinois, facility, which was acquired in December 2005, and the Bryan, Ohio, OTR facility, which was acquired in July 2006.

Income from operations was $4.7 million for the third quarter of 2006 as compared to $2.2 million in 2005. Titan’s net income was $0.5 million for the third quarter of 2006, compared to $1.2 million in 2005. Basic earnings per share were $.02 in the third quarter of 2006, compared to $.06 in 2005. The Company’s net income was lower in the third quarter of 2006 as compared to 2005 as the result of a higher effective tax rate of 40% in the third quarter of 2006 as compared to a tax benefit recorded in the third quarter of 2005, resulting in higher income taxes of $1.1 million in 2006.

ACQUISITION OF GOODYEAR’S NORTH AMERICAN FARM TIRE ASSETS

The productivity obtained during the first nine months of 2006 associated with the Freeport facility is meeting Titan’s current expectations. The Freeport facility achieved a manufacturing output of approximately $38 million and $150 million of manufacturing output during the three and nine months ended September 30, 2006, respectively.

ACQUISITION OF CONTINENTAL’S OTR ASSETS

The productivity obtained since startup after the July 31 acquisition date associated with the Bryan facility is meeting Titan’s current expectations. The Bryan facility achieved a manufacturing output of approximately $16 million of manufacturing output since startup after the July 31 acquisition date.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

RECENT DEVELOPMENTS

Termination of Cash Merger Discussions

CRITICAL ACCOUNTING POLICIES

Preparation of the financial statements and related disclosures in compliance with generally accepted accounting principles accepted in the United States requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The Company’s application of these policies involves assumptions that require difficult subjective judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the estimates, assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial statements and disclosures.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for approximately 77% of inventories and the last-in, first-out (LIFO) method for approximately 23% of inventories. The major rubber material inventory and related work-in-process and finished goods are accounted for under the FIFO method. The major steel material inventory and related work-in-process and finished goods are accounted for under the LIFO method. Market value is estimated based on current selling prices. Estimated provisions are established for excess and obsolete inventory, as well as inventory carried above market price based on historical experience. Should this experience change, adjustments to the estimated provisions would be necessary.

Impairment of Goodwill

The Company reviews goodwill to assess recoverability from future operations during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. The Company had goodwill of $11.7 million at September 30, 2006. Significant assumptions relating to future operations must be made when estimating future cash flows in analyzing goodwill for impairment. Should unforeseen events occur or operating trends change significantly, impairment losses could occur.

Impairment of Fixed Assets

The Company reviews fixed assets to assess recoverability from future operations whenever events and circumstances indicate that the carrying values may not be recoverable. Impairment losses are recognized in operating results when expected undiscounted future cash flows are less than the carrying value of the asset. Impairment losses are measured as the excess of the carrying value of the asset over the discounted expected future cash flows, or the fair value of the asset. The Company had idled assets marketed for sale of $15.2 million at September 30, 2006. Appraisals from third-party valuation firms indicate that the fair market values of the machinery and equipment at these facilities exceed their respective carrying values. Significant assumptions relating to future operations must be made when estimating future cash flows. Should unforeseen events occur or operating trends change significantly, impairment losses could occur.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Retirement Benefit Obligations

Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts. These assumptions include discount rates, expected return on plan assets, mortality rates and other factors. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and obligations. The Company has two frozen defined benefit pension plans and one defined benefit plan that purchased a final annuity settlement in 2002. During the first nine months of 2006, the Company contributed $3.1 million to its frozen pension plans. The Company expects to contribute approximately $0.9 million to these frozen defined benefit pension plans during the remainder of 2006. For more information concerning these costs and obligations, see the discussion of the “Pensions” and Note 23 to the Company’s financial statements on Form 10-K for the fiscal year ended December 31, 2005.

Valuation of Investment Accounted for as Available-for-Sale Security

The Company had an investment in Titan Europe Plc of $49.2 million as of September 30, 2006, representing a 15.4% ownership position. This investment is recorded as “Investment in Titan Europe Plc” on the consolidated balance sheet. The Company reports this investment at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity. Should the fair value decline below the cost basis, the Company would be required to determine if this decline is other than temporary. If the decline in fair value is judged to be other than temporary, an impairment charge would be recorded. Should unforeseen events occur or investment trends change significantly, impairment losses could occur. Declared dividends on this investment are recorded in income as a component of other income.

RESULTS OF OPERATIONS

The following table provides highlights for the three and nine months ended September 30, 2006, compared to 2005

(amounts in millions, except per share data):

	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005
Net sales	$	156.1		$	102.7		$	513.9		$	373.6
Gross profit		17.1			11.0			70.6			57.6
Gross profit margin		10.9	%		10.7	%		13.7	%		15.4	%

Income from operations	$	4.7		$	2.2		$	33.7		$	29.3

Net income	$	0.5		$	1.2		$	14.7		$	16.6
Earnings per share - Basic		.02			.06			.75			.94
Earnings per share - Diluted		.02			.06			.65			.83

Net Sales

Quarter: Net sales for the quarter ended September 30, 2006, were $156.1 million, compared to $102.7 million in 2005.

Year to date: Net sales for the nine months ended September 30, 2006, were $513.9 million, compared to 2005 net sales of $373.6 million.

Other information: The large sales improvement of $53.4 million, or 52% for the quarter ended September 30, 2006, and $140.3 million, or 38% for the nine months ended September 30, 2006, was attributed to the expanded agricultural product offering of Goodyear branded farm tires and the expanded earthmoving, construction and mining product offering of Continental & General branded off-the-road (OTR) tires. These product offerings came with the added manufacturing capacity from the Freeport, Illinois, facility, which was acquired in December 2005, and the Bryan, Ohio, OTR facility, which was acquired in July 2006.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Cost of Sales and Gross Profit

Quarter: Cost of sales were $139.0 million for the three months ended September 30, 2006, as compared to $91.7 million in 2005. Gross profit for the third quarter of 2006 was $17.1 million or 10.9% of net sales, compared to $11.0 million or 10.7% of net sales for the third quarter of 2005.

Year to date: Cost of sales were $443.3 million for the nine months ended September 30, 2006, as compared to $316.0 million in 2005. Gross profit for the nine months ended September 30, 2006, was $70.6 million or 13.7% of net sales, compared to $57.6 million or 15.4% of net sales for 2005.

Other information: The year-to-date gross profit margin was negatively affected by approximately 1% due to raw material cost increases of approximately $5 million.

Administrative Expenses

Quarter: Selling, general and administrative (SG&A) expenses for the third quarter of 2006 were $10.4 million or 6.6% of net sales, compared to $7.4 million or 7.2% of net sales for 2005.

Year to date: Expenses for SG&A for the nine months ended September 30, 2006, were $30.3 million or 5.9% of net sales, compared to $24.3 million or 6.5% of net sales in 2005.

Other information: Research and development (R&D) expenses, which were previously shown separately, have been combined with the SG&A expenses due to the reduced level of R&D expenditures. R&D expenses were $0.9 million and $0.6 million for the nine months ended September 30, 2006 and 2005, respectively. SG&A expenses for the three and nine months ended September 30, 2006, increased as a result of the Freeport and Bryan acquisitions.

Royalty Expense

Quarter: Royalty expenses recorded for the three months ended September 30, 2006, were $1.1 million. No royalty expense was recorded in the three months ended September 30, 2005, as this license agreement was not yet in place.

Year to date: Royalty expenses recorded for the nine months ended September 30, 2006, were $4.0 million. No royalty expense was recorded in the nine months ended September 30, 2005, as this license agreement was not yet in place.

Other information: The December 2005 Goodyear North American farm tire asset acquisition included a license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America.

Idled Assets Marketed for Sale

Quarter: The Company incurred $0.9 million in depreciation related to the idled assets for the three months ended September 30, 2006, as compared to $1.3 million in 2005.

Year to date: The Company incurred $2.7 million in depreciation related to the idled assets for the nine months ended September 30, 2006, as compared to $4.0 million in 2005.

Other information: The Company’s profit margins have been negatively affected by the depreciation associated with the idled assets marketed for sale. The idled assets balance at September 30, 2006, was $15.2 million. Included in the September 30, 2006, balance is land and a building at the Company’s idled facility in Greenwood, South Carolina, totaling $1.8 million. Machinery and equipment located at the Company’s idled facilities in Brownsville, Texas, and Natchez, Mississippi, totaling $13.4 million are also included in idled assets at September 30, 2006.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Income from Operations

Quarter: Income from operations for the third quarter of 2006 was $4.7 million or 3.0% of net sales, compared to $2.2 million or 2.2% in 2005.

Year to date: Income from operations for the nine months ended September 30, 2006, was $33.7 million or 6.5% of net sales, compared to $29.3 million or 7.8% in 2005.

Other information: Income from operations were affected by the items previously discussed.

Interest Expense

Quarter: Interest expense was $4.6 million for the three months ended September 30, 2006, compared to $1.8 million in 2005. The Company’s average debt balance was approximately $109 million higher for the three months ended September 30, 2006, resulting in an increase in interest expense of approximately $2 million. The Company’s average interest rates were 8.2% in the three months ended September 30, 2006, compared to 6.2% in 2005, resulting in an increase in interest expense of approximately $1 million.

Year to date: Interest expense was $12.0 million for the nine months ended September 30, 2006, compared to $6.7 million in 2005. The Company’s average debt balance was approximately $64 million higher for the nine months ended September 30, 2006, resulting in an increase in interest expense of $3 million. The Company’s average interest rates were 7.6% in the nine months ended September 30, 2006, compared to 6.1% in 2005, resulting in an increase in interest expense of approximately $2 million.

Other information: The Company’s interest expense will continue to fluctuate as a result of varying levels of revolving debt and the associated interest rates.

Noncash Convertible Debt Conversion Charge

Quarter: The three months ended September 30, 2006 and 2005, had no applicable noncash convertible debt conversion charge.

Year to date: In June of 2005, Titan finalized a private transaction in which the Company issued 3,022,275 shares of common stock in exchange for the cancellation of $33.8 million principal amount of the Company’s outstanding 5.25% senior convertible notes due 2009, as proposed to the Company by certain note holders. The Company recognized a noncash charge of $7.2 million in connection with this exchange.

Other information: The noncash convertible debt conversion charge was recorded in accordance with Statement of Financial Accounting Standards (SFAS) No. 84, “Induced Conversions of Convertible Debt.”

Other Income

Quarter: Other income was $0.7 million for the three months ended September 30, 2006, compared to other expense of $0.1 million in 2005. Dividend income from the Titan Europe Plc investment of $0.5 million was recorded in the three months ended September 30, 2006. Included in other income for the three months ended September 30, 2005, was $0.3 million of equity income on the Titan Europe Plc investment.

Year to date: Other income was $2.8 million for the nine months ended September 30, 2006, compared to $1.2 million in 2005. The $2.8 million for the nine months ended September 30, 2006, included $1.1 million of interest income received in March 2006 regarding the final calculation of interest earned associated with restricted cash previously on deposit for the Dyneer legal case. In addition, dividend income from the Titan Europe Plc investment of $1.3 million was recorded in the nine months ended September 30, 2006. Included in other income for the nine months ended September 30, 2005, was $2.4 million of equity income on the Titan Europe Plc investment.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Other information: The Company no longer uses the equity method to account for its interest in Titan Europe Plc. as a result of decreased ownership percentage in Titan Europe Plc, effective December 2005. Therefore, after this date, the Company records dividend income on its investment in Titan Europe Plc.

Income Taxes

Quarter: The Company recorded income tax expense of $0.3 million for the three months ended September 30, 2006, as compared to an income tax benefit of $0.8 million for the three months ended September 30, 2005.

Year to date: The Company recorded income tax expense of $9.8 million for the nine months ended September 30, 2006, as compared to no income tax expense for the nine months ended September 30, 2005.

Other information: During the first nine months of 2005, the Company’s income tax expense differed from the amount of income tax determined by applying the statutory U.S. federal income tax rate to income before income taxes primarily as a result of the partial reversal of the valuation allowance recorded against the Company’s domestic net deferred income tax asset balance. As a result of several years of previous losses, the Company had recorded a full valuation allowance against its net deferred income tax asset, consistent with the Company’s accounting policies. During the fourth quarter of 2005, based upon anticipated utilization of net operating loss carryforwards in connection with its future federal income tax filings, the Company reversed the remainder of this valuation allowance. As a result of this reversal, the Company’s effective income tax rate was 40% in the nine months ended September 30, 2006, as compared to a 0% effective income tax rate in the nine months ended September 30, 2005.

Net Income

Quarter: Net income for the three months ended September 30, 2006, was $0.5 million, compared to $1.2 million in 2005. Basic earnings per share was $.02 for the three months ended September 30, 2006, compared to $.06 in 2005. Diluted earnings per share was $.02 for the three months ended September 30, 2006, compared to $.06 in 2005.

Year to date: Net income for the nine months ended September 30, 2006, was $14.7 million, compared to $16.6 million in 2005. Basic earnings per share was $.75 for the nine months ended September 30, 2006, compared to $.94 in 2005. Diluted earnings per share was $.65 for the nine months ended September 30, 2006, compared to $.83 in 2005.

Other information: The Company’s net income and earnings per share for the three and nine months ended September 30, 2006, as compared to 2005 were affected primarily by the noncash convertible debt conversion charge in 2005. In addition, net income and earnings per share were affected by the higher effective income tax rate of 40% in the nine months ended September 30, 2006, as compared to a 0% income tax rate in the nine months ended September 30, 2005.

Agricultural Segment Results

Quarter: Net sales in the agricultural market were $89.0 million for the three months ended September 30, 2006, as compared to $64.6 million in 2005. Income from operations in the agricultural market was $2.4 million for the three months ended September 30, 2006, as compared to $4.2 million in 2005.

Year to date: Net sales in the agricultural market were $329.7 million for the nine months ended September 30, 2006, as compared to $244.9 million in 2005. Income from operations in the agricultural market was $34.4 million for the nine months ended September 30, 2006, as compared to $29.5 million in 2005.

Other information: The expanded product offering of Goodyear branded farm tires, along with added manufacturing capacity from the Freeport, Illinois, facility accounted for the majority of the agricultural market sales increase. The decrease in income from operations in the agricultural market in the third quarter was attributed to sales volumes in relation to fixed overheads.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Earthmoving/Construction Segment Results

Quarter: The Company’s earthmoving/construction market net sales were $56.7 million for the three months ended September 30, 2006, as compared to $31.3 million for 2005. Income from operations in the earthmoving/construction market was $8.6 million for the three months ended September 30, 2006, as compared to $3.5 million in 2005.

Year to date: The Company’s earthmoving/construction market net sales were $117.5 million for the nine months ended September 30, 2006, as compared to $106.2 million for 2005. Income from operations in the earthmoving/construction market was $18.3 million for the nine months ended September 30, 2006, as compared to $16.0 million in 2005.

Other information: The expanded product offering of the Continental & General brands for OTR tires, along with added manufacturing capacity from the Bryan, Ohio, facility accounted for the majority of the earthmoving/construction market sales increase in the third quarter. This increase offset a decrease in sales to the United States government, which were approximately $4 million and $18 million lower in the three and nine months ended September 30, 2006, respectively, as compared to 2005. Sales to the United States government are dependent on government appropriations and have a tendency for significant fluctuations. The Bryan, Ohio, facility produces tires for earthmoving, construction, and mining machinery in sizes larger than the Company was able to produce before this facility was acquired on July 31, 2006. The increase in income from operations in the earthmoving/ construction segment is the result of margins realized on these larger earthmoving, construction, and mining tires.

Consumer Segment Results

Quarter: Consumer market net sales were $10.4 million for the three months ended September 30, 2006, as compared to $6.8 million for 2005. Consumer market income from operations was $0.4 million for the three months ended September 30, 2006, as compared to $0.2 million in 2005.

Year to date: Consumer market net sales were $66.7 million for the nine months ended September 30, 2006, as compared to $22.5 million for 2005. Consumer market income from operations was $2.1 million for the nine months ended September 30, 2006, as compared to $1.8 million in 2005.

Other information: The Goodyear farm tire acquisition agreement included an off-take/mixing agreement for certain product sales to Goodyear, the majority of which are included in the consumer segment. Sales to The Goodyear Tire & Rubber Company under this agreement were approximately $6 million and $44 million in the three and nine months ended September 30, 2006, respectively. Consumer market income from operations on a quarterly basis and year to date were relatively consistent in the year over year comparisons.

Corporate Expenses

Quarter: Income from operations on a segment basis does not include corporate expenses or depreciation and amortization expense related to property, plant and equipment carried at the corporate level totaling $6.8 million for the three months ended September 30, 2006, as compared to $5.7 million in 2005.

Year to date: Income from operations on a segment basis does not include corporate expenses or depreciation and amortization expense related to property, plant and equipment carried at the corporate level totaling $21.2 million for the nine months ended September 30, 2006, as compared to $17.9 million in 2005.

Other information: The increase in corporate expenses related primarily to higher sales and marketing expenses of approximately $1 million and $2 million for the three and nine months ended September 30, 2006, as compared to 2005.

MARKET RISK SENSITIVE INSTRUMENTS

The Company’s risks related to foreign currencies, commodity prices and interest rates are consistent with those for 2005. For more information, see the “Market Risk Sensitive Instruments” discussion in the Company’s Form 10-K for the fiscal year ended December 31, 2005.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

As of September 30, 2006, the Company had $0.3 million of cash deposited within various bank accounts. The cash balance decreased by $0.3 million from December 31, 2005, due to the cash flow items discussed in the following paragraphs.

Operating cash flows

In the first nine months of 2006, cash of $13.4 million was used for operating activities. This usage was primarily the result of increase in accounts receivable and inventory of $50.3 million and $38.4 million, respectively, offset by net income of $14.7 million, depreciation and amortization of $19.5 million, and increases in accounts payable and other current liabilities of $25.1 million and $15.7 million. The significant increase in accounts payable, accounts receivable and inventory in the first nine months of 2006 related to the higher sales levels and the Goodyear North American farm tire and Continental OTR acquisitions. In comparison, for the first nine months of 2005, positive cash flows from operating activities of $35.6 million resulted primarily from net income of $16.6 million, depreciation and amortization of $15.9 million and a noncash convertible debt conversion charge of $7.2 million.

Investing cash flows

Titan invested $44.0 million for the Continental OTR tire acquisition in the nine months ended September 30, 2006. The Company invested $4.8 million in capital expenditures in the first nine months of 2006, compared to $3.1 million in the first nine months of 2005. The expenditures represent various equipment purchases and improvements to enhance production capabilities. The Company estimates that its total capital expenditures for the remainder of 2006 will be approximately $4 million.

Financing cash flows

In the nine months ended September 30, 2006, cash of $61.9 million was provided by financing activities. This cash was provided primarily by net debt proceeds of $58.4 million and by proceeds from the exercise of stock options of $3.5 million. In comparison, in the first nine months of 2005, cash of $33.5 million was used for financing activities, primarily the result of net revolver payments of $33.9 million.

Debt Covenants

The Company’s revolving credit facility contains various covenants and restrictions. The financial covenants in this agreement require that:

·	The Company’s minimum book value of eligible accounts receivable and eligible inventory be equal to or greater than $75 million (or equal to or greater than $100 million when the 30-day average of the outstanding revolver balance exceeds $110 million).

·	Collateral coverage be equal to or greater than 1.20 times the outstanding revolver balance.

·	If the 30-day average of the outstanding revolver balance exceeds $225 million, the fixed charge coverage ratio be equal to or greater than a 1.0 to 1.0 ratio.

Restrictions include:

·	Limits on payments of dividends and repurchases of the Company’s stock.

·	Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company.

·	Limitations on investments, dispositions of assets and guarantees of indebtedness.

·	Other customary affirmative and negative covenants.

These covenants and restrictions could limit the Company’s ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, to pay dividends or to take advantage of business opportunities, including future acquisitions. If the Company were unable to meet these covenants, the Company would be in default on these loan agreements.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The Company is in compliance with these covenants and restrictions as of September 30, 2006. The Company’s minimum book value of eligible accounts receivable and eligible inventory is required to be equal to or greater than $100 million and the Company computed it to be $269 million at September 30, 2006. The collateral coverage is required to be equal to or greater than 1.20 times the outstanding revolver balance and was calculated to be 2.01 times this balance at September 30, 2006. The fixed charge coverage ratio must be equal to or greater than a 1.0 to 1.0 ratio if the 30-day average of the outstanding revolver balance exceeds $225 million. This covenant did not apply for the quarter ended September 30, 2006. The outstanding revolver balance was $183.0 million at September 30, 2006, including cash borrowings of $167.3 million and letters of credit of $15.7 million.

Other Issues

The Company’s business is subject to seasonal variations in sales that affect inventory levels and accounts receivable balances. Historically, the Company tends to experience higher sales demand in the first and second quarters. In addition, Titan realized sales increases in 2006 as a result of the acquisitions of the Freeport, Illinois, and Bryan, Ohio, facilities.

Liquidity Outlook

At September 30, 2006, the Company had cash and cash equivalents of $0.3 million and $67.0 million of unused availability under the terms of its revolving credit facility. The availability under the Company’s $250 million revolving credit facility is reduced by $167.3 million of borrowings and $15.7 million for outstanding letters of credit. The Company had scheduled debt principal payments amounting to $2.2 million due for the remainder of 2006. Titan expects to contribute approximately $0.9 million to its frozen defined benefit pension plans during the remainder of 2006. The Company estimates that its total capital expenditures for the remainder of 2006 will be approximately $4 million.

Cash on hand, anticipated internal cash flows from operations and utilization of remaining available borrowings are expected to provide sufficient liquidity for working capital needs, capital expenditures, and payments required on short-term debt. However, if the Company were to exhaust all currently available working capital sources or were not to meet the financial covenants and conditions of its loan agreements, the Company’s ability to secure additional funding may be negatively impacted.

MARKET CONDITIONS AND OUTLOOK

In the first nine months of 2006, the Company experienced a softening in demand from original equipment manufacturers for Company products. In December of 2005, the Company acquired the Goodyear North American farm tire assets, which included a manufacturing facility in Freeport, Illinois. The transaction also included a license agreement with Goodyear for Titan to manufacture and sell Goodyear branded farm tires in North America. On July 31, 2006, Titan Tire Corporation of Bryan, a subsidiary of the Company, acquired the off-the-road (OTR) tire facility of Continental Tire North America, Inc. (Continental) in Bryan, Ohio. The Bryan facility produces tires for earthmoving, construction, and mining equipment in larger sizes than Titan previously produced. Titan is using the expanded agricultural product offering of Goodyear branded farm tires and the expanded earthmoving/construction product offering supplied by the Bryan facility, along with added manufacturing capacity from the Freeport and Bryan facilities to expand market share. Therefore, although markets are expected to be slightly lower, the Company expects its sales to continue to be significantly higher through the remainder of 2006 due to the Freeport and Bryan facility acquisitions. Higher energy, raw material and petroleum-based product costs may continue to negatively impact the Company’s margins. Many of Titan’s overhead expenses are fixed; therefore, lower seasonal trends may cause negative fluctuations in quarterly profit margins and affect the financial condition of the Company.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Agricultural Market Outlook

Agricultural market sales for the industry are expected to remain slightly lower in 2006. Although the farm economy is forecasted to remain stable, the high cost of fuel and fertilizer is negatively affecting the farm sector. Increasing use of grain-based ethanol and soybean-based biodiesel fuel should support commodity prices and farm income levels in the long-term. Titan’s capacity in the agricultural market has increased significantly as a result of the Freeport facility acquisition and, therefore, Titan’s agricultural sales should remain higher for the remainder of 2006 when compared to 2005. Deere & Company has extended their long-term wheel agreement with Titan from an expiration date of October 31, 2007, to October 31, 2010. Many variables, including weather, grain prices, export markets, and future government policies and payments can greatly influence the overall health of the agricultural economy.

Earthmoving/Construction Market Outlook

Earthmoving/construction market industry sales are expected to remain stable for the remainder of 2006. Higher commodity prices continue to support earthmoving and mining sales. The Bryan facility produces tires for large earthmoving, construction, and mining machinery, which Titan did not previously produce. Therefore, Titan’s sales in this segment should remain higher for the remainder of 2006 when compared to 2005. This segment may be affected by the October 2006 strike at numerous Goodyear North American facilities. The earthmoving/construction segment is affected by many variables including commodity prices, road construction, infrastructure, government appropriations and housing starts. Many of these factors are very sensitive to interest rate fluctuations.

Consumer Market Outlook

Titan’s sales in the consumer market should be stable for the remainder of 2006 as compared to 2005. Sales to Goodyear will fluctuate significantly based upon their future product requirements. These product requirements may be affected by the October 2006 strike at numerous Goodyear North American facilities. The all-terrain vehicle (ATV) wheel and tire market is expected to offer future long-term opportunities for Titan within the consumer market. Many factors affect the consumer market including weather, competitive pricing, energy prices, interest rates and consumer attitude.

PENSIONS

The Company has two frozen defined benefit pension plans and one defined benefit plan that purchased a final annuity settlement in 2002. These plans are described in Note 23 of the Company’s Notes to Consolidated Financial Statements in the 2005 Annual Report on Form 10-K. The Company’s recorded liability for pensions is based on a number of assumptions, including discount rates, rates of return on investments, mortality rates and other factors. Certain of these assumptions are determined with the assistance of outside actuaries. Assumptions are based on past experience and anticipated future trends. These assumptions are reviewed annually at a minimum and revised when appropriate. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and the carrying value of the related obligations. During the nine months ended September 30, 2006, the Company contributed $3.1 million to the frozen defined benefit pension plans. The Company expects to contribute approximately $0.9 million to these frozen defined benefit pension plans during the remainder of 2006.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

NEW ACCOUNTING STANDARDS

Financial Accounting Standards Board Interpretation Number 48

Statement of Financial Accounting Standards Number 157

In September 2006, Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” was issued. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is evaluating the effect the adoption of this standard will have on its financial position, results of operations and cash flows.

Statement of Financial Accounting Standards Number 158

Staff Accounting Bulletin Number 108

TITAN INTERNATIONAL, INC.

PART I. FINANCIAL INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See the Company’s 2005 Annual Report filed on Form 10-K (Item 7A). There has been no material change in this information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s principal executive officer and principal financial officer believe the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective as of the end of the period covered by this Form 10-Q based on an evaluation of the effectiveness of disclosure controls and procedures.

Changes in Internal Controls

There were no material changes in internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the third quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

TITAN INTERNATIONAL, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 6. Exhibits

10	Asset purchase agreement by and among Titan Tire Corporation of Bryan, Titan Tire Corporation and Continental Tire North America, Inc.
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TITAN INTERNATIONAL, INC.
	(Registrant)

Date:	October 27, 2006	By:	/s/ MAURICE M. TAYLOR JR.
			Maurice M. Taylor Jr.
			Chairman of the Board of Directors and Chief Executive Officer

	By:	/s/ KENT W. HACKAMACK
		Kent W. Hackamack
		Vice President of Finance and Treasurer
		(Principal Financial Officer)

EX-10 2 ex10.htm ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT

Exhibit 10

ASSET PURCHASE AGREEMENT

among

Titan Tire Corporation of Bryan

(Purchaser)

Titan Tire Corporation

(Parent)

and

Continental Tire North America, Inc.

(Seller)

Dated as of July 31, 2006

TABLE OF CONTENTS

1.	AGREEMENT TO SELL AND AGREEMENT TO PURCHASE	1
1.1	Assets to be Conveyed	1
1.2	Excluded Assets	3
1.3	Closing	4
2.	CONSIDERATION TO BE PAID BY PURCHASER	4
2.1	Purchase Price for Acquired Assets; Payment Thereof	4
2.2	Liabilities Assumed by Purchaser	4
2.3	Liabilities Retained by Seller	5
2.4	Inventory Purchase Price Adjustment	6
2.5	Sales Taxes	7
2.6	Price Allocation	7
3.	REPRESENTATIONS AND WARRANTIES OF PURCHASER	8
3.1	Organization, Good Standing, Authority and Enforceability	8
3.2	Agreement Not in Breach of Other Instruments	8
3.3	Consents	8
3.4	Available Funds	8
3.5	No Brokerage Fees	8
4.	REPRESENTATIONS AND WARRANTIES OF SELLER	9
4.1	Organization, Good Standing and Authority	9
4.2	Authorization of Agreement.	9
4.3	Acquired Assets	9
4.4	Financial Statements	10
4.5	Real Property	10
4.6	Utilities	10
4.7	Environmental Matters	10
4.8	Employment Matters	11
4.9	Employee Benefit Plans	11
4.10	Consents	11
4.11	Disclaimer	12
4.12	Absence of Changes	12
4.13	Assumed Contracts	12
4.14	Compliance with Laws	13
4.15	Customers and Suppliers	13
4.16	No Broker’s Fees	13
4.17	No Other Representations and Warranties	13
5.	CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES	13
5.1	Reasonable Efforts; Further Assurances	13
5.2	Employment Matters	14
5.3	Consents	16

5.4	Use of Business Names by Purchaser; Trademark License	16
5.5	Compound Supply Agreement	16
5.6	Know-How License	16
5.7	Transition Services Agreement	16
5.8	Raw Materials Supply Agreement	16
5.9	Bead and Steel Fabric Supply Agreements	17
5.10	Master Distributorship Agreement	17
5.11	Other Agreements	17
5.12	Prorations	17
5.13	Access to Records	17
5.14	Tax Matters	17
5.15	Access	18
5.16	Employee Benefit Matters; Union Ratification	18
5.17	Conduct of Business Pending the Closing	18
6.	CONDITIONS TO CLOSING	18
6.1	Conditions to Obligations of Each Party	18
6.2	Conditions to Obligations of Purchaser	19
6.3	Conditions to Obligations of Seller	20
7.	INDEMNIFICATION	22
7.1	Indemnification by Seller	22
7.2	Indemnification by Parent and Purchaser	23
7.3	Determination of Loss	24
7.4	Limitations on Indemnification.	24
7.5	Indemnification Procedure	26
7.6	Exclusive Remedy	27
8.	ADDITIONAL COVENANTS AND AGREEMENTS	27
8.1	Expenses	27
8.2	Public Releases	27
8.3	Termination Events	28
8.4	Effect of Termination	28
8.5	Unaudited Financial Statements	28
9.	MISCELLANEOUS	29
9.1	Entire Agreement	29
9.2	Amendments; Waiver	29
9.3	Successors; Assignment	30
9.4	Notices	30
9.5	Severability	31
9.6	No Third Party Beneficiary	31
9.7	Applicable Law	31
9.8	Counterparts	31
9.9	Headings; Construction	31
9.10	Certain Information	32

9.11	No Strict Construction	32
9.12	Further Assurances	32
10.	CERTAIN DEFINITIONS	32
10.1	Definitions	32

iii

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (“Agreement”) is dated as of July 31, 2006, between Titan Tire Corporation of Bryan, an Ohio corporation (“Purchaser”), Titan Tire Corporation, an Illinois corporation and an Affiliate of Purchaser (“Parent”), and Continental Tire North America, Inc., an Ohio corporation (“Seller”). Section 10 of this Agreement defines certain capitalized terms used but not elsewhere defined in this Agreement.

RECITALS:

A. Seller, among other things, is engaged in the Business.

B. Purchaser desires to purchase certain of the assets of Seller used exclusively by Seller in the operation of the Business, including the Facility, and Seller desires to sell such assets of the Business to Purchaser, all upon the terms and conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the mutual promises and covenants herein contained and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, the parties hereto agree as follows:

1. AGREEMENT TO SELL AND AGREEMENT TO PURCHASE

1.1 Assets to be Conveyed. On the terms and subject to the conditions set forth herein, and except as provided in Section 1.2 hereof, on the Closing Date (as defined in Section 1.3 hereof), Seller shall and shall cause its Affiliates, where appropriate, to convey, sell, transfer, assign and deliver to Purchaser free and clear of any Liens of any nature whatsoever, and Purchaser shall and shall cause its Affiliates, where appropriate, to purchase, acquire and accept from Seller and such Affiliates of Seller, all of the tangible assets used exclusively in the operation of the Business as of the Closing Date (whether or not located at the Facility) and the certain intangible assets related thereto (collectively, the “Acquired Assets”), which Acquired Assets include the following:

(a) All inventories of finished goods wherever located and recorded, in the internal accounting records of Seller, as directly owned by Seller, and all raw materials (including raw materials in transit and owned by Seller), work in process, supplies, tooling, dies, jigs, spare parts, replacement and component parts located at the Facility including those set forth on Schedule 1.1(a) which Schedule shall be dated no earlier than sixty (60) days before the date hereof and shall be updated thereafter from time to time by Seller as appropriate (raw materials, inventory and work in process collectively referred to herein as, the “Inventory”); provided, however, that, with respect to any tooling owned by a third party, which tooling is listed on Schedule 1.1(a), possession of such items will be transferred to Purchaser if and only to the extent that Purchaser assumes the contract between Seller and such third party pursuant to Section 1.1(e) or, if no written contract exists, the obligations of Seller with respect to such tooling. To the extent any of the Acquired Assets described in this Section 1.1(a) are located at a site other than the Facility, Purchaser shall be provided a reasonable period after the Closing Date, but not to exceed sixty (60) days, to remove all such Acquired Assets;

(b) All molds, wherever located, and all machinery and equipment located at the Facility including those items listed on Schedule 1.1(b) (“MM&E”); provided, however, that, with respect to items of MM&E owned by a third party, which items are listed on Schedule 1.1(b), possession of such item will be transferred to Purchaser if and only to the extent that Purchaser assumes the contract between Seller and such third party pursuant to Section 1.1(e) or, if no written contract exists, the obligations of Seller with respect to such items;

(c) All furniture, fixtures, owned vehicles and owned computer hardware located at the Facility. Schedule 1.1(c) lists all owned and leased vehicles and all owned and leased computer hardware located at the Facility;

(d) All customer lists, sales brochures, data bases, books and records, correspondence and production records and the following proprietary software systems that are in stand-alone operation at the Facility: (i) the program for Foxpro used for tracking production, quality information and shipping data, (ii) the program for Access that runs scales for weighing compounds in the mixing department, (iii) the program for Access used for cure press monitoring and control, and (iv) the “birth certificate” system;

(e) All warranties and guaranties by, and rights, choses in action and claims, known or unknown, matured or unmatured, accrued or contingent against, third parties;

(f) Other than the contracts, agreements and commitments set forth on Schedule 1.1(f) (the “Excluded Contracts”) (which Schedule 1.1(f) and Excluded Contracts will expressly include the Union Contracts), all of Seller’s right, title and interest in and to all contracts, agreements and commitments (including unfilled customer and purchase orders) to which Seller is a party at the Closing Date or by which any of the Acquired Assets is then bound and, in each case, which are utilized exclusively in the conduct of the Business, including, without limitation, all warranty agreements and off-take agreements entered into by Seller exclusively in the conduct of the Business (all of the foregoing to be assigned to Purchaser pursuant hereto (subject to Section 5.3) are hereinafter referred to collectively as the “Assumed Contracts” and individually as an “Assumed Contract”); provided, however, that the parties acknowledge that agreements that otherwise would be included in the definition of “Assumed Contracts” that are between Seller and Affiliates of Seller (“Affiliate Contracts”) shall not be assumed by Purchaser and shall be included on Schedule 1.1(f); provided, further, that Seller will cause such Affiliates to enter into new arrangements with Purchaser as of the Closing on terms substantially similar to those set forth in such Affiliate Contracts but in any case the pricing of products supplied under such Affiliate Contracts shall not exceed cost plus 5%. An Affiliate shall not terminate an Affiliate Contract except upon six (6) months advance written notice to Purchaser.

(g) All telephone and telecopy numbers;

(h) The owned real estate encompassing the Facility, together with all rights of way, licenses, permits, easements and appurtenances thereto (the “Owned Real Property”); and

(i) All governmental approvals, licenses and permits which are utilized in the conduct of the Business at the Facility, including those listed on Schedule 1.1(g) (the “Transferred Permits”).

1.2 Excluded Assets. Notwithstanding anything contained in Section 1.1 hereof to the contrary, Seller is not selling, and Purchaser is not purchasing (i) any assets of Seller set forth in this Section 1.2 and (ii) any assets of Seller not used exclusively in the operation of the Business, all of which shall be retained by Seller (the “Excluded Assets”). To the extent that any of the Excluded Assets are located at the Facility, Seller shall be provided a reasonable period after the Closing Date, but not to exceed sixty (60) days, to remove all such Excluded Assets. The Excluded Assets include, but are not limited to:

(a) Any cash, investments and other cash equivalents;

(b) Seller’s minute books, Tax returns and other organizational documents, and Seller’s financial records and employment records, other than those employment records pertaining to Employees and allowed to be transferred to Purchaser under applicable Laws;

(c) All qualifications to transact business as a foreign corporation, arrangements with registered agents with respect to foreign qualifications, and taxpayer and other identification numbers;

(d) Any Tax benefits and rights to refunds, including rights to any net operating losses;

(e) Any contracts (other than the Assumed Contracts) or rights relating to borrowed money;

(f) Except as provided for in the Trademark License, all trademarks, trade names and business names, including “Continental,” “General” and any and all variations thereof and any related intangibles, trademark applications and registrations, and internet domain names which consist of or incorporate the names “Continental” and “General” and any and all variations thereof;

(g) Any prepaid items, deposits, advance payments, deferred charges and other similar assets;

(h) All accounts and notes receivable and any security held by Seller for the payment thereof;

(i) Except as provided for in the Know-How License, all business, proprietary and confidential information, including trade secrets, capabilities, technical information, know-how, process technology, ideas, designs, processes, procedures, algorithms, discoveries, inventions, blueprints, engineering data, patterns, bills of materials, and drawings and specifications, and all improvements thereof (the “Know-How”); provided, however, that the Know-How related to the compounds used in the Business known as “B1035” and “B1548” shall not be included in the Know-How provided in the Know-How License, but rather will be supplied and delivered to Purchaser pursuant to the terms of the Compound Supply Agreement;

(j) Except as provided for in the Know-How License, all intellectual property licenses, patents, patent applications, copyrights, copyright applications, computer programs and formula not used exclusively in the operations of the Business;

(k) Employee benefit plans, policies and arrangements except as set forth in the Retiree Medical, Pension and Union Related Agreements referenced in Section 5.16 below; and

(l) All inventories of finished goods owned by those reporting entities of Seller identified (by code number and name) on Schedule 1.2(l).

1.3 Closing. The closing of the transactions herein contemplated (the “Closing”) shall take place at 10 A.M., local time, on the later of July 31, 2006, or the second business day after the day on which the last of the conditions set forth in Section 6 hereof shall have been fulfilled or waived (the “Closing Date”) unless another date is agreed to by the parties, at a place mutually agreed to by the parties. The Closing will be effective as of 11:59 p.m. on the Closing Date.

2. CONSIDERATION TO BE PAID BY PURCHASER

2.1 Purchase Price for Acquired Assets; Payment Thereof. Purchaser shall pay to Seller $52,900,000 (the “Initial Purchase Price”) as the aggregate purchase price for the Acquired Assets, subject to the post-Closing adjustments as provided in Section 2.4 below. On the Closing Date, Purchaser shall pay to Seller the Initial Purchase Price by wire transfer thereof in immediately available funds to an account designated by Seller. The Initial Purchase Price (as adjusted pursuant to Section 2.4) will be allocated among the Acquired Assets in the manner set forth in Section 2.6.

2.2 Liabilities Assumed by Purchaser. As further consideration for the purchase of the Acquired Assets and consummation of the other transactions contemplated hereby, on the Closing Date, Purchaser shall assume and agree to perform and discharge in full, when due, the liabilities of Seller and the Business arising under or associated with (collectively, the “Assumed Liabilities”):

(a) Purchaser’s conduct of the Business after the Closing Date, including with respect to the use of the Acquired Assets and the hiring and employment of the Employees; provided that:

(i) obligations for services rendered both prior to and after the Closing Date will be allocated between Purchaser and Seller based on the Closing Date (e.g., an invoice for services rendered for the third quarter would be allocated 1/3 to Seller as an Excluded Liability and 2/3 to Purchaser as an Assumed Liability;

(b) All product liability claims caused by or the result of any product produced or manufactured by Purchaser after Closing;

(d) Any recalls by a third party of a product of such third party which utilizes a product sold, distributed or otherwise placed in the stream of commerce by Purchaser in the Business after Closing (other than any such product that was manufactured by Seller on or before Closing), or manufactured by Purchaser in the Business after Closing;

(e) Except as expressly provided in Section 2.3 below, any of the following matters: (i) any violation of any Environmental Law with respect to the operation of the Business; and (ii) any generation, treatment, storage, transport, management, use, handling, disposal, leakage, spill or release of any Hazardous Material with respect to the operation of the Business on, under or migrating from the Owned Real Property (collectively, items (i) and (ii) are hereinafter sometimes referred to as the “Environmental Liabilities”), regardless of when or where such Environmental Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Closing; and

(f) The Assumed Contracts.

2.3 Liabilities Retained by Seller. With respect to the Environmental Liabilities, notwithstanding the terms of Section 2.2(e) above, Seller will remain liable only for (and the Environmental Liabilities will not include), (i) any obligation or liability relating directly to or in connection with any disposal or arrangement for disposal of any Hazardous Material from the Owned Real Property on or before the Closing at any Off-Site Location and (ii) the Environmental Law liabilities, if any, of which Seller has Actual Knowledge including those listed on Schedule 4.7. Except for the assumption by Purchaser of the Assumed Liabilities, Seller will retain all liabilities relating to the Business (including those specifically referenced as retained in the first sentence of this Section 2.3) and, except for the Assumed Liabilities, Purchaser shall not assume nor be liable or responsible for, whether as a successor or otherwise, any obligation or liability of Seller or the Business of any kind or nature whatsoever (such liabilities collectively referred to herein as the “Excluded Liabilities”).

2.4 Inventory Purchase Price Adjustment. Within 30 days after the Closing Date, Seller shall deliver to Purchaser a schedule (the “Closing Inventory Schedule”) setting forth the value of the Inventory used or useable by the Business as of the close of business on the last business day preceding the Closing Date (the “Closing Inventory”). The valuation of the Closing Inventory reflected on the Closing Inventory Schedule shall be determined on all Inventory produced or acquired by Seller in the Ordinary Course of Business as follows: (i) with respect to finished goods, the value of each class of OTR Tire as determined in a manner consistent with Seller’s accounting practices as set forth on below shall be used to determine the aggregate value of such finished goods, (ii) with respect to raw materials, the per pound value of each component thereof is set forth on Schedule 2.4 and the raw materials shall be valued in a manner consistent with Seller’s accounting practices and (iii) with respect to work in process, such value shall be determined in accordance with Seller’s established accounting practices. All Closing Inventory will be valued consistent with Seller’s accounting practices which include assessing inventory for reserves at the lower of cost or net realizable value and reserves for obsolete inventory in accordance with Seller’s applicable accounting principles (which accounting principles comply with GAAP except in respect to the capitalized costs related to pension and retiree, medical and depreciation, all of which are accounted for using principles in accordance with IFRS.)

(a) The Closing Inventory as reflected in the Closing Inventory Schedule (the “Closing Inventory Value”), shall become final and binding upon the written agreement of the parties. In the event of any disagreement, Seller and Purchaser shall negotiate in good faith to resolve any differences. If within ten (10) days following receipt of the Closing Inventory Schedule by Purchaser, any such differences have not been resolved, they shall be resolved by KPMG or such other independent accounting firm of national reputation as may be mutually acceptable to Seller and Purchaser (the “Independent Accountants”). The Independent Accountants will be instructed to conduct such dispute resolution and perform their services as expeditiously as possible, and to deliver a revised Closing Inventory Value to Seller and Purchaser as a result thereof, which revised Closing Inventory Value shall be binding on the parties. The revised Closing Inventory Value shall be prepared by the Independent Accountants in compliance with Seller’s current accounting and inventory costing practices currently in place and established in Seller’s accounting manual. The fees and expenses of Independent Accountants in preparing the revised Closing Inventory Value and in taking the physical inventory shall be borne equally by Seller and Purchaser.

(b) The final and binding Closing Inventory Value determined pursuant to Section 2.4(a), whether by (i) Seller’s and Purchaser’s mutual agreement in writing, or (ii) delivery thereof by the Independent Accountants, is hereinafter referred to as the “Final Closing Inventory Value.”

(c) If the Final Closing Inventory Value is less than $11,500,000, then (A) the Initial Purchase Price shall be reduced, dollar for dollar, by the amount of such shortfall (with the amount of the Initial Purchase Price as so reduced referred to herein as the “Final Purchase Price”), and (B) Seller shall pay to Purchaser an amount equal to (x) the Initial Purchase Price less (y) the Final Purchase Price.

(d) If the Final Closing Inventory Value is greater than $11,500,000, then (A) the Initial Purchase Price shall be increased, dollar for dollar, by the amount of such excess (with the amount of the Initial Purchase Price as so increased also referred to herein as the “Final Purchase Price”) and (B) Purchaser shall pay to Seller an amount equal to (x) the Final Purchase Price less (y) the Initial Purchase Price.

(e) Any payment due by Seller to Purchaser or by Purchaser to Seller pursuant to this Section 2.4 shall be paid no later than three business days after the determination of the Final Closing Inventory Value, by wire transfer of immediately available funds to such account as shall be designated by the recipient.

(f) Payments owing by one party to the other under this Section 2.4 shall bear interest at the Agreed Rate from the date of determination of the Final Closing Inventory Value until the date payment-in-full is made.

2.5 Sales Taxes. Provided that Purchaser delivers to Seller at the Closing the exemption certificate referenced in Section 6.3(d)(iii) below, Seller shall be responsible for and duly pay all sales, use, excise, transfer, value added and similar Taxes imposed by any Government in any jurisdiction on the purchase and sale of any of the Acquired Assets.

2.6 Price Allocation. The Final Purchase Price shall be allocated in accordance with a schedule to be mutually agreed upon by the parties following the Closing. After the Closing, Purchaser and Seller shall make consistent use of the agreed upon allocation for all purposes (including financial and regulatory reporting purposes and Tax purposes). Purchaser and Seller further agree to file, as applicable, their respective U.S. federal income Tax returns and Form 8594 and, to the extent not in conflict with applicable Law, their other Tax returns reflecting such allocation and any other reports required by Section 1060 of the Code, in accordance with said allocation. Each party agrees to prepare and timely file all applicable IRS forms, to cooperate with the other party in the preparation of such forms and to furnish the other party with a copy of such forms prepared in draft, within a reasonable period before the due date thereof. In addition, each party agrees to notify the other party in the event any taxing authority takes or purports to take a position inconsistent with the agreed-upon allocations.

3. REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Seller that:

3.1 Organization, Good Standing, Authority and Enforceability. Each of Parent and Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of its incorporation. Each of Parent and Purchaser has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. This Agreement and each other agreement and instrument to be executed by Parent or Purchaser, as applicable, in connection herewith have been (or upon execution shall have been) duly executed and delivered by Parent or Purchaser, as applicable, have been duly authorized by all necessary corporate action and constitute (or upon execution shall constitute) legal, valid and binding obligations of Parent and Purchaser enforceable against Parent and Purchaser in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other Laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity (regardless of whether considered in a proceeding in equity or at law).

3.2 Agreement Not in Breach of Other Instruments. Neither the execution and delivery of this Agreement or the Transaction Agreements by Parent or Purchaser nor the consummation of the transactions contemplated herein or therein shall result in a violation or breach of, or constitute a default under (i) any agreement, indenture or other instrument to which Parent or Purchaser is a party or by which it is bound, (ii) the organizational and charter documents of Parent or Purchaser, (iii) any judgment, decree, order or award of any court, Government or arbitrator by which parent or Purchaser is bound, or (iv) any Law applicable to Parent or Purchaser.

3.3 Consents. The execution and delivery of this Agreement and the Transaction Agreements by Parent and Purchaser and the consummation by them of the transactions contemplated in this Agreement and in the Transaction Agreements (i) do not require the consent, approval or action of, or any filing with or notice to, any Person or Government, including any filing under the HSR Act, other than as specified in Schedule 3.3, and (ii) do not require the consent or approval of Parent’s or Purchaser’s, as applicable, stockholders or board of directors, except such as have been obtained and are in full force and effect.

3.4 Available Funds. Purchaser has readily available to it funds sufficient to allow it to consummate the transactions contemplated by this Agreement on a timely basis.

3.5 No Brokerage Fees. Neither Parent, Purchaser nor anyone acting on their behalf has incurred any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Seller or any of its Affiliates shall be liable.

4. REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Purchaser that:

4.1 Organization, Good Standing and Authority. Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Ohio. Seller has full corporate authority and power to carry on the Business as it is now conducted, and to own, lease or operate the Acquired Assets. Set forth in Schedule 4.1 is a true and correct list of all jurisdictions in which the Business owns or leases property for use in the Business.

4.2 Authorization of Agreement.

(a) Seller has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. Subject to receipt of approval from the shareholders of Seller, this Agreement and each other agreement and instrument to be executed by Seller in connection herewith have been (or upon execution shall have been) duly executed and delivered by Seller, have been duly authorized by all necessary corporate and shareholder action and constitute (or upon execution shall constitute) legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other Laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity (regardless of whether considered in a proceeding in equity or at law); and

(b) Except as set forth in Schedule 4.2, neither the execution and delivery of this Agreement by Seller nor the consummation of the transactions contemplated herein shall result in a violation or breach of, or constitute a default under (i) the Articles of Incorporation or Code of Regulations of Seller, (ii) any material term or provision of any Assumed Contract or other contract, indenture, note, mortgage, bond, security agreement, loan agreement, guaranty, pledge, or other agreement, instrument or document to which Seller is a party or by which Seller is bound, (iii) any judgment, decree, order or award of any court, Government or arbitrator by which Seller is bound, or (iv) to Seller’s Knowledge any Law applicable to Seller.

4.3 Acquired Assets. Except as set forth in Schedule 4.3, Seller is the lawful owner of or has the right to use each of the Acquired Assets free and clear of all Liens. Except for Excluded Assets and except as set forth on Schedule 4.3, there are no assets or properties used exclusively in and necessary for the operation of the Business as currently conducted and owned by any Person other than Seller that shall not be leased or licensed to Purchaser under a valid, current lease or license arrangement included among the Assumed Contracts. Seller has, and will, as of the Closing Date, have the right, power and authority to convey, transfer, assign and deliver the Acquired Assets to Purchaser free and clear of any Lien. The Acquired Assets comprise the tangible assets used or held for use by Seller and necessary to operate the Business as currently being operated by Seller. All Acquired Assets are in operating condition and have been reasonably maintained in accordance with normal industry practice.

4.4 Financial Statements. Seller previously has delivered to Purchaser copies of certain management measurements of income and losses and certain assets and liabilities with respect to the Business (collectively, the “Reports”). The Reports (a) were prepared in all material respects in accordance with the internal accounting practices of Seller and (b) were prepared in all material respects consistent with past practices of Seller for measuring income and loss for unincorporated business units based on business unit accounting and not necessarily in accordance with GAAP.

4.5 Real Property. Except as set forth in Schedule 4.5 and except with respect to matters arising under Environmental Laws, for which Seller makes only those representations and warranties set forth in Section 4.7:

(a) Seller owns good and marketable fee simple title to the Owned Real Property, free and clear of all Liens;

(b) the Owned Real Property constitutes all of the real property currently owned by Seller and used for the operation of the Business as presently conducted;

(c) each parcel of Owned Real Property has adequate access to the existing roads and other public rights of way for the operation of the Business as presently conducted;

(d) the present use, occupancy and operation of the Owned Real Property, and all aspects of the improvements to the Owned Real Property (the “Real Property Improvements”), are in compliance in all material respects with all applicable Laws;

(e) all Real Property Improvements are located within the lot lines of the Owned Real Property (and within the mandatory set-backs from such lot lines established by applicable Law or otherwise) and not over areas subject to any easements or rights of way which would make the Owned Real Property unusable for its current use or impair the value of the Owned Real Property; and

(f) all material certificates of occupancy and other permits and approvals required with respect to the Real Property Improvements and the use, occupancy and operation thereof have been obtained and paid for and are currently in effect, and Seller has not received any notices of violation in connection with such items.

4.6 Utilities. Except as set forth on Schedule 4.6, each parcel of Owned Real Property at which the Business is conducted has access to utilities (including electric, natural gas, water, sewer, telephone, and similar services but excluding electronic data transmission services) adequate to operate the Business operated at such parcel in the manner currently conducted.

4.7 Environmental Matters. To Seller’s Knowledge, Schedule 4.7 contains a list of all environmental studies, analyses and reports prepared during the last five years and in Seller’s possession or reasonably available to Seller relating to the environmental condition of the Owned Real Property and the operation of the Business (collectively, the “Environmental Reports”), and Seller has made available to Purchaser copies of all such Environmental Reports, if any. To the Actual Knowledge of Seller, except as set forth in Schedule 4.7, Seller is and has been conducting the Business and the Facility in compliance, in all material respects, with all applicable Environmental Laws.

4.8 Employment Matters. Seller or an Affiliate has withheld or collected from each payment made to each of the Employees the amount of all Taxes required to be withheld or collected therefrom, and Seller or an Affiliate has paid the same when due to the applicable Government agency.

(a) Schedule 4.8(a) lists all current non-represented Employees, as of May 1, 2006, and their hourly rates of compensation or base salaries. To the extent any Employees were on a leave of absence as of January 1, 2005, Schedule 4.8(b) indicates the nature of such leave of absence and each such Employee’s anticipated date of return to active employment. Seller has complied, in all material respects, with all Laws relating to the recruitment and hiring and the employment of the Employees, including Laws relating to wages, hours, equal opportunity, immigration, collective bargaining and occupational health and safety.

(b) Schedule 4.8(b) list all workers’ compensation and occupational disease claims and occurrences by any existing Employees or Former Employees of the Business made since January 1, 2006, and all claims made prior to that date that remain open.

4.9 Employee Benefit Plans. To Seller’s Knowledge, except as set forth on Schedule 4.9, each Plan, and the administration of each Plan, complies with all applicable Laws (including, in the case of Plans which are intended to be tax-qualified, all applicable provisions of the Code, including Sections 401(a) and 401(k)), except for any noncompliance that would not reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 4.9, Seller has not, with respect to the Business, established, maintained or contributed to or otherwise participated in a multi-employer retirement plan (as defined in Section 3(37)(A) of ERISA), any defined benefit plan within the meaning of Section 3(35) of ERISA, or any other plan which is subject to the provisions of Sections 302 or Title IV of ERISA or Section 412 of the Code, and Seller and its ERISA Affiliates have timely made any contributions required by them to any such plan, and have no unpaid withdrawal liability or termination liability under Title IV of ERISA with respect to any such plan. Schedule 4.9 identifies all Employees and Former Employees and their dependents eligible for health benefits as required by COBRA from Seller or any of its ERISA Affiliates. To Seller’s Knowledge, notice in accordance with the requirements of COBRA, has been provided to all Employees and Former Employees (and their spouses and dependants) entitled thereto, and all such persons electing such coverage are being (or will be or have been, as applicable) provided such coverage, except to the extent failure to give such notice would not result in a Material Adverse Effect.

4.10 Consents. The execution and delivery of this Agreement and the Transaction Agreements by Seller and the consummation by Seller of the transactions contemplated in this Agreement and in the Transaction Agreements (i) do not require the consent, approval or action of, or any filing with or notice to, any Government entity other than as specified in Schedule 4.10, and (ii) requires the consent and approval of Seller’s shareholders and board of directors.

4.11 Disclaimer. EXCEPT AS EXPRESSLY AND SPECIFICALLY SET FORTH HEREIN, (i) ALL ACQUIRED ASSETS ARE BEING CONVEYED HEREUNDER ON AN “AS IS, WHERE IS” BASIS AND (ii) SELLER MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO THE ACQUIRED ASSETS OR THE BUSINESS, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND WARRANTIES AS TO THE PROSPECTS OF THE BUSINESS AFTER THE CLOSING, ALL OF SUCH EXPRESS AND IMPLIED WARRANTIES AND REPRESENTATIONS ARE HEREBY EXCLUDED.

4.12 Absence of Changes. Except as provided for in this Agreement or as set forth in Schedule 4.12, since March 31, 2006:

(a) no event has occurred that has had or would reasonably be expected to have a Material Adverse Effect;

(b) the Business has been operated in the Ordinary Course of Business;

(c) no liability or obligation (whether absolute, accrued, contingent or otherwise) in excess of $250,000 has been incurred by Seller with respect to the Business, other than liabilities incurred in the Ordinary Course of Business;

(d) Seller has not (i) paid any judgment in excess of $250,000 resulting from any Action against Seller relating to the Acquired Assets or (ii) made any payment to any Person in excess of $250,000 in settlement of any Action against Seller relating to the Business or the Acquired Assets;

(e) there has been no sale, transfer, lease or other disposition of any assets of Seller that are necessary for or used exclusively in the Business, other than sales of Inventory in the Ordinary Course of Business and any other asset that is not material to the current operation of the Business; or

(f) Seller has not entered into any contract, oral or written, to do or engage in any of the foregoing after the date hereof.

4.13 Assumed Contracts. Schedule 4.13 hereto lists all of the Assumed Contracts. Except as set forth on Schedule 4.13, and assuming due execution and delivery by the counterparties thereto, each Assumed Contract is in full force and effect and is, in all material respects, a valid and binding obligation, enforceable in all material respects in accordance with its terms, subject only to bankruptcy, reorganization, receivership and other laws affecting creditors’ rights generally and to general principals of equity, whether invoked in a proceeding in equity or at law. Seller is not in default under or in violation of any of the Assumed Contract, and to Seller’s Knowledge, no event has occurred which, with notice or lapse of time or both, would constitute such a default or violation. To Seller’s Knowledge, there is no default under or violation of any of the Assumed Contracts by any other party thereto.

4.14 Compliance with Laws. Seller is and has been conducting the Business in compliance, in all material respects, with all applicable Laws relating to the Acquired Assets and the operation and conduct of the Business and no assertion of a violation of any such Laws has been received or, to Seller’s Knowledge, is threatened. Notwithstanding the foregoing or anything to the contrary in this Agreement, the representations or warranties in this Section 4.14 shall NOT apply to Environmental Laws and Seller may look only to the representations or warranties in Section 4.7 as they may relate to Seller’s compliance with Environmental Laws.

4.15 Customers and Suppliers. Schedule 4.15 sets forth the names of the ten (10) most significant (i) customers (by revenue, including percentages of total revenues) of the Business and (ii) suppliers (by expense) exclusively to the Facility, in each case for the twelve (12) month period ending December 31, 2005. Except as disclosed on Schedule 4.15, to Seller’s Knowledge, no material customer or supplier of the Business has canceled or otherwise terminated, or made any threat to cancel or otherwise terminate, its relationship with Seller. To Seller’s Knowledge, with respect to the Business, no such customer has provided written notice that such customer intends to cancel or otherwise terminate its relationship with Seller or to materially decrease its purchase of products and services from Seller.

4.16 No Broker’s Fees. Neither Seller nor anyone acting on Seller’s behalf has incurred any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Purchaser or any Affiliate of Purchaser shall be liable.

4.17 No Other Representations and Warranties. Seller has not made, and Seller shall not be deemed to have made, any representation or warranty other than as expressly made by Seller in this Section 4, the Schedules or the Transaction Agreements . Without limiting the generality of the foregoing, and notwithstanding any representations and warranties made by Seller in this Section 4, Seller makes no representation or warranty with respect to (i) any projections, estimates or budgets delivered or made available to Purchaser or its Representatives at any time with respect to future revenues, expenses or expenditures or future results of operations, or (ii) except as expressly covered by a representation and warranty contained in this Section 4, any other information or documents (financial or otherwise) made available to Purchaser or its Representatives before or after the date of this Agreement. No representation or warranty of Seller contained in this Section 4 or in any Schedule hereto contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements made, in the context in which made, not false or misleading.

5. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES

5.1 Reasonable Efforts; Further Assurances. Each party shall use its reasonable efforts to take or cause to be taken all actions necessary, proper or advisable to fulfill and perform its obligations in respect of this Agreement, or otherwise to consummate and make effective the transactions contemplated hereby and to cause its respective conditions set forth in Sections 6.1, 6.2 and 6.3 to be satisfied. From time to time after the Closing, each party shall execute and deliver any documents and take any other actions that the other party reasonably requests to confirm or effectuate the consummation of the transactions contemplated by this Agreement.

5.2 Employment Matters.

(a) Purchaser and its Affiliates, as appropriate, shall:

(i) effective as of the Closing Date, offer “at will” employment to all non-represented Employees who timely complete and deliver Purchaser’s standard employment application, which offer will be contingent upon such non-represented Employees passing Purchaser’s medical exam and drug test requirements. Said Employees shall also be offered the same benefits as currently available to Purchaser’s employees; provided, however, that such non-represented Employees shall be offered positions with base salaries not less than 90% of the base salaries such non-represented Employees earned immediately prior to the Closing Date. Purchaser shall prepare and timely deliver to Seller the following information: (1) the names of all Employees to whom offers of employment have been made, (2) the location of employment, (3) the job title, and (4) whether such offer of employment was accepted or rejected;

(ii) negotiate and enter into an agreement with the Union establishing terms and conditions of employment for Hired Employees represented by the Union to be effective as of the Closing Date that complies with Article I, Section 1:03 of the 1999-2006 collective bargaining agreement (“CBA”) between the Union and Seller;

(iii) offer employment to all represented Employees on the terms and conditions negotiated by the Purchaser with the Union; and

(iv) recognize the Union as the collective bargaining representative of all Hired Employees represented by the Union and comply with any legal obligations to engage in collective bargaining with the Union.

(b) Represented and non-represented Employees who accept offers of employment with the Purchaser shall, once they become employed, be referred to as the “Hired Employees.”

(c) Purchaser shall be solely responsible for any liabilities resulting from its practices and procedures in screening and hiring Employees of the Business and for its employment decisions with respect to the hiring or refusal to hire any Employees of the Business.

(d) Purchaser shall be solely responsible for all liability, costs and expenses (including reasonable attorneys’ fees) for all claims filed by any Employees with respect to acts or omissions by Purchaser or its agents or employees, including, but not limited to arbitrations, unfair labor practice charges, litigation under any statute or ordinance pertaining to labor relations, employment discrimination charges, employment claims or litigation of any kind, breach of contract claims, wrongful termination claims, workers’ compensation claims, any employment-related tort claim or other similar claims or charges of or by any Employees. Seller shall be solely responsible for all liability, costs and expenses (including reasonable attorneys’ fees) for all claims filed by any Employees with respect to acts or omissions by Seller or its agents or employees, including, but not limited to arbitrations, unfair labor practice charges, litigation under any statute or ordinance pertaining to labor relations, employment, discrimination charges, employment claims or litigation of any kind, breach of contract claims, wrongful termination claims, workers’ compensation claims, any employment-related tort claim or other similar claims or charges of or by any Employees.

(e) Seller shall be solely responsible for (i) the payment or provision of all salaries, wages, benefits and other incidents of, or claims relating to, the employment of the Employees for the period prior to the Closing, (ii) claims made or incurred by any Employee under the Plans prior to the Closing and (iii) compliance with the requirements of COBRA (as hereinafter defined), including, without limitation, the provision of continuation coverage, with respect to all Employees and their qualified beneficiaries for whom a qualifying event occurs before the Closing Date. For purposes of this Section 5.2, “COBRA” means Section 4980B of the Internal Revenue Code of 1986, as amended, and part 6 of subtitle B of Title I of the Employment Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq., and “qualified beneficiary” and “qualifying event” shall have the meanings given such terms in COBRA. Purchaser shall be solely responsible for the payment or provision of all salaries, wages, benefits and other incidents of, or claims relating to, the employment of any of the Hired Employees and, if applicable, for any of their respective dependents for the period following the Closing or, if later, the effective date of hire.

(f) Seller and its Affiliates, as appropriate, shall:

(i) provide reasonable assistance to Purchaser in connection with its negotiations with the Union as contemplated by this Section 5.2;

(ii) comply with their legal obligations, if any, to bargain with the Union regarding the transfer of the Business and the concomitant termination of Hired Employees and the effects of these actions on Employees represented by the Union;

(iii) provide reasonable assistance to the Purchaser in connection with the transition of ownership of the Business and the hiring and employment of the Hired Employees; and

(iv) retain all liabilities under the Union Contracts, all of which Union Contracts to which Seller is a party and that relate to the Business are listed on Schedule 5.2.

(g) Without Purchaser’s prior written consent, Seller shall take no action that results in a “plant closing” or “mass layoff” within the definitions of the Worker Adjustment and Retraining Notification Act and related regulations (“WARN”) and any similar Laws prior to the Closing. Purchaser shall take all other steps necessary to eliminate any obligation of Seller or any of its Affiliates under WARN or any other similar Laws to give notice of the transfer of any operations or the loss of employment or loss of pay or benefits or to pay any amounts in lieu of such notice. In addition, after Closing, Purchaser shall comply with the notice provisions of WARN and any similar Laws in connection with the termination of any Hired Employees.

(h) The parties agree that the provisions of this Section 5.2 is solely among and for the benefit of the parties hereto and do not inure to the benefit of or confer rights upon any third party, including any Employee.

(i) Purchaser will provide to Seller a service history of employment with Purchaser and any Affiliate of Purchaser of all salaried employees who were employees of Seller employed in the Business as of the Closing Date at the request of Seller or at least not less than annually. The service history shall include, at a minimum, full name, social security number, date of birth, date of hire and date of termination or layoff.

5.3 Consents. Each party shall use its reasonable efforts to cooperate with the other party to obtain any necessary consent to assignment and transfer of the Acquired Assets to Purchaser at Closing. If consent to assignment of a particular Acquired Asset is not obtained or if such assignment is not permitted regardless of consent, Seller shall use its reasonable efforts to cooperate with Purchaser in any reasonable arrangement designed to provide Purchaser all material benefits of that Acquired Asset.

5.4 Use of Business Names by Purchaser; Trademark License. Effective as of the Closing Date, Purchaser and Seller shall, and Seller shall cause its Affiliate, Continental A.G. and its subsidiary, Continental Automotive Licensing Corp., a Michigan corporation, to enter into a license agreement for the use of the “Continental” and “General” name substantially in the form attached hereto as Exhibit A (the “Trademark License”).

5.5 Compound Supply Agreement. Effective as of the Closing Date, Purchaser and Seller shall enter into a supply agreement pursuant to which Seller or an Affiliate of Seller will supply to Purchaser for its use in the Business the compounds used in the Business known as “B1035” and “B1548” substantially in the form attached hereto as Exhibit B (the “Compound Supply Agreement”).

5.6 Know-How License. Effective as of the Closing Date, Seller shall, and to the extent applicable, shall cause its Affiliates to, grant to Purchaser a paid-up perpetual and worldwide license to use the Know- How used by the Business on the Closing Date substantially in the form attached hereto as Exhibit C (the “Know-How License”).

5.7 Transition Services Agreement. Effective as of the Closing Date, Purchaser and Seller shall enter into an transition services agreement substantially in the form attached hereto as Exhibit D (the “Transition Services Agreement”).

5.8 Raw Materials Supply Agreement. Effective as of the Closing Date, Purchaser and Seller shall enter into a raw materials supply agreement pursuant to which Purchaser shall agree to acquire its supply of certain specified OTR raw materials from Seller for a period commencing as of the Closing Date and continuing through December 31, 2006, which agreement shall be substantially in the form attached hereto as Exhibit E (the “Raw Materials Supply Agreement”).

5.9 Bead and Steel Fabric Supply Agreements. Effective as of the Closing Date, Purchaser and Seller shall enter into (i) a supply agreement pursuant to which Purchaser will acquire OTR beads from Seller or an Affiliate of Seller, which agreement shall be substantially in the form attached hereto as Exhibit F-1 (the “Bead Supply Agreement”) and (ii) a supply agreement pursuant to which Purchaser will acquire OTR steel fabric from Seller or an Affiliate of Seller, which agreement shall be substantially in the form attached hereto as Exhibit F-2 (the “Steel Fabric Supply Agreement”).

5.10 Master Distributorship Agreement. Effective as of the Closing Date, Purchaser and Continental Aktiengesellschaft shall enter into a master distributorship agreement substantially in the form attached hereto as Exhibit G (the “Master Distributorship Agreement”).

5.11 Other Agreements. Effective as of the Closing Date, Purchaser and Seller shall enter into such other supply and services arrangements that Purchaser and Seller deem reasonably necessary or advisable for each of them to carry on their respective businesses after the Closing, each on terms reasonably acceptable to Purchaser and Seller.

5.12 Prorations. All personal and real property Taxes affecting the Acquired Assets shall be prorated to the Closing Date in accordance with local custom. Seller shall pay all installments of special assessments with respect to the Owned Real Property that come due on or before the Closing Date, and Purchaser shall pay all such installments that come due after the Closing Date. All water, sewer, utility and other similar charges, and all prepaid rent and other similar credits, affecting the Owned Real Property shall be prorated to the Closing Date (with Closing Date meter readings as appropriate). The foregoing prorations shall be paid by the responsible party, insofar as feasible, at the Closing, or to the extent not feasible, within thirty (30) days following the Closing, by immediately available funds. Any errors or omissions in computing prorations at the Closing, or any re-computations required as a result of facts that become known after the Closing, shall be corrected (and paid as specified above) as soon as practicable thereafter. Payments owing by one party to the other under this Section 5.8 shall bear interest at the Agreed Rate from the Closing Date until the date payment-in-full is made.

5.13 Access to Records. Each party shall preserve for seven years after Closing all business records relating to the Business and shall provide the other party and its Representatives, during reasonable business hours and upon reasonable advance notice, access to and the right to copy (at the other party’s own expense) such records for any legitimate business purpose, including a Tax audit or governmental inquiry, and each party to whom the records are disclosed hereby agrees to keep confidential any confidential or proprietary information included in those records and to use the records for no other purpose.

5.14 Tax Matters. The parties shall cooperate in the preparation of all federal, state, local and foreign Tax returns and reports for which one party could reasonably require the assistance of the other party, including providing any information reasonably requested by another party to assist in the preparations of any such returns.

5.15 Access. During the period between the date hereof and the Closing Date, Seller will give Purchaser and its representatives reasonable access to the employees, consultants, assets, properties, contracts, accounts, books and records, and other documents of Seller related to the Business and the Acquired Assets during normal business hours, and Seller will furnish to Purchaser copies of all such documents and all such financial and operating data and information with respect to the Business and the Acquired Assets as Purchaser may from time to time reasonably request. In the event that the transactions contemplated by this Agreement should fail to be consummated, all documents, data, information, books and records delivered by Seller to Purchaser will promptly be returned to Seller and any information obtained by Purchaser from such documents, data, information, books and records or otherwise learned by Purchaser about the Business as a result of such investigation will thereafter be kept confidential, unless such information (i) is or becomes a matter of public knowledge or otherwise is known to competitors of Seller through no fault of Purchaser, or (ii) can be shown to have been in the possession of Purchaser prior to such information’s disclosure by Seller.

5.16 Employee Benefit Matters; Union Ratification. Contemporaneously with the execution and delivery of this Agreement, Buyer, the VEBA, the SPT and/or Seller, as applicable, will enter into and deliver that certain (i) Pension Reimbursement Agreement, (ii) Pension Transfer Agreement, (iii) Retiree Medical Transfer Agreement and (iv) Letter Agreement relating to the Transfer of Certain Assets and Liabilities of Bryan, OH OTR Tire Business, which agreement(s) will be in a form acceptable to Seller in its reasonable discretion and which agreement(s), by their terms, will be effective as of the Closing Date (the “Retiree Medical, Pension and Union Related Agreements”). In addition, contemporaneously with the execution and delivery of this Agreement, Buyer will deliver to Seller an agreement ratified and approved by the Union, to be effective as of the Closing Date, establishing terms and conditions of employment for Hired Employees represented by the Union that both complies with Section 5.2 hereof and Article I, Section 1:03 of the CBA between the Union and Seller, which agreement will be in a form and substance reasonably acceptable to Seller.

5.17 Conduct of Business Pending the Closing. Between the date hereof and the Closing Date, except as contemplated herein (including, without limitation, the activities regarding the Union negotiations), Seller will conduct the Business in the Ordinary Course of Business. Further, Seller agrees that between the date hereof and the Closing Date, Seller will (i) use commercially reasonable efforts to maintain the Acquired Assets and to preserve its relationships with its present suppliers and customers relating to the Business and (ii) absent the written consent of Purchaser, not sell, transfer or otherwise dispose of any of the Acquired Assets other than Inventory sold in the Ordinary Course of Business.

6. CONDITIONS TO CLOSING.

6.1 Conditions to Obligations of Each Party. As a condition to the obligations of Purchaser and Seller to consummate the transactions contemplated hereby (which condition may be waived by any party and which shall be deemed to have been waived in whole if the Closing occurs), all consents, approvals and authorizations of, and any filings with or notices to, any Government that are necessary for the consummation of the transactions contemplated by this Agreement must have been received and must be in full force and effect and there must not have occurred any change resulting in a Material Adverse Effect.

6.2 Conditions to Obligations of Purchaser. As an additional condition to the obligation of Purchaser to consummate the transactions contemplated hereby (which condition may be waived, in whole or in part, by Purchaser in writing and shall be deemed to have been waived in whole if the Closing occurs), Purchaser must have received the following documents, dated the Closing Date (unless another date is identified) and the following conditions must have been satisfied:

(a) A copy, certified by an authorized officer of Seller, of resolutions of the board of directors and shareholders of Seller authorizing the execution, delivery and performance of this Agreement and all other agreements, documents and instruments relating hereto and the consummation of the transactions contemplated hereby;

(b) A certificate executed by an authorized officer of Seller to the effect that all of Seller’s representations and warranties in this Agreement and the Transaction Agreements are accurate in all material respects as of the Closing Date as if made on the Closing Date (unless made as of another date) and that all of the covenants and obligations that Seller is required to perform or to comply with pursuant to this Agreement and the Transaction Agreements at or prior to the Closing have been duly performed and complied with in all material respects;

(c) A bill of sale for the Acquired Assets and an assignment and assumption agreement for the Assumed Contracts, each in form and substance reasonably satisfactory to Purchaser, covering items of tangible and intangible personal property included in the Acquired Assets and transferring Seller’s rights, duties and obligations in the Assumed Contracts to Purchaser;

(d) A general warranty deed for the Owned Real Property;

(e) The Trademark License;

(f) The Compound Supply Agreement;

(g) The Know-How License;

(h) The Transition Services Agreement;

(i) The Raw Materials Supply Agreement;

(j) The Bead Supply Agreement;

(k) The Steel Fabric Supply Agreement;

(l) The Master Distributorship Agreement;

(m) The consents set forth on Schedule 6.2(m);

(n) Such further documents and instruments of sale, transfer, conveyance, assignment or delivery covering the Acquired Assets or any part thereof as Purchaser may reasonably require to assure the sale and assignment of the Acquired Assets as contemplated by this Agreement;

(o) Purchaser shall have completed its due diligence investigation of the Acquired Assets and shall not have discovered any fact, circumstance, transaction or event of which Purchaser did not have notice as of the date hereof and that constitutes a material breach of the representations and warranties of Seller set forth herein; provided, however, that Purchaser shall not be entitled to rely on the condition set forth in this Section 6.2(o) at any time after the date that is twenty (20) days after the date of this Agreement; provided, further, that the foregoing limitations shall not apply to the extent that (i) Seller has not complied, in all material respects, with its obligations under Section 5.15 hereof and (ii) Purchaser has provided Seller with prior written notice of, and a reasonable opportunity to cure, such non-compliance. For purposes of the preceding sentence “material breach” shall mean facts, circumstances, transactions or events, including a claim under or relating to Environmental Law, which alone or in the aggregate would, or would reasonably be expect to equal or exceed One Million Dollars ($1,000,000). If, prior to Closing, Purchaser delivers written notice to Seller claiming that Seller has failed to cooperate with Purchaser, (which notice shall set forth in detail the claimed failure to cooperate), and if Seller fails or refuses to cure such claim within five (5) business days of receipt of such notice, then Purchaser may deliver a second written notice to Seller terminating this Agreement effective upon delivery of said second notice, and thereupon, Purchaser shall have no obligation or liability under this Agreement for said termination; and

(p) A certificate from each of Paul Hawkins, Jim Houston, Steve Newell and Keith Tarnovich attesting and verifying that such individual is not aware of any breach of any of the representations and warranties of Seller as set forth in Section 4 of this Agreement.

6.3 Conditions to Obligations of Seller. The obligation of Seller to consummate the transactions contemplated hereby shall be subject to the fulfillment, at or prior to the Closing Date, of the following additional conditions (any of which condition may be waived, in whole or in part, by Seller in writing and shall be deemed to be waived in whole if the Closing occurs):

(a) Purchaser must have paid to Seller the Initial Purchase Price for the Acquired Assets in immediately available funds pursuant to Section 2.1 of this Agreement;

(b) The shareholders of Seller shall have approved the transactions contemplated herein; and

(i) Copies, certified by the Secretary of Purchaser, of resolutions of the managers or board of directors of Purchaser authorizing the execution and delivery of this Agreement and all other agreements, documents or instruments relating hereto and the consummation of the transactions contemplated hereby;

(ii) A certificate executed by an authorized officer of Purchaser to the effect that all of Purchaser’s representations and warranties in this Agreement and the Transaction Agreements are accurate in all material respects as of the Closing Date as if made on the Closing Date (unless made as of another date) and that all of the covenants and obligations that Purchaser is required to perform or to comply with pursuant to this Agreement and the Transaction Agreements at or prior to the Closing have been duly performed and complied with in all material respects;

(iii) An Exemption Certificate, in form and substance reasonably satisfactory to Seller, covering a resale exemption for the Inventory included in the Acquired Assets;

(iv) Assignment and assumption agreements for the Assumed Liabilities and the Assumed Contracts, each in form and substance reasonably satisfactory to Purchaser, wherein Purchaser assumes all of Seller’s rights, duties and obligations in and to the Assumed Liabilities and the Assumed Contracts, as applicable;

(v) The Trademark License;

(vi) The Compound Supply Agreement;

(vii) The Know-How License;

(viii) The Transition Services Agreement;

(ix) The Raw Materials Supply Agreement;

(x) The Bead Supply Agreement;

(xi) The Steel Fabric Supply Agreement;

(xii) The Master Distributorship Agreement;

(xiii) A certificate from each of Paul Hawkins, Jim Houston, Steve Newell and Keith Tarnovich attesting and verifying that such individual is not aware of any breach of any of the representations and warranties of Seller as set forth in Section 4 of this Agreement; and

(xiv) Such further documents and instruments reasonably requested by Seller to assure the assumption of the Assumed Liabilities and the Assumed Contracts as contemplated by this Agreement.

7. INDEMNIFICATION.

7.1 Indemnification by Seller. Subject to the terms hereof, Seller agrees to defend, indemnify and hold Purchaser and its managers, directors, officers, Affiliates and Representatives (the “Purchaser Indemnified Parties”) harmless from and against any claim, liability, expense, loss or other damage (including reasonable attorneys’ fees and expenses) (collectively, “Claims”) asserted against, imposed upon or incurred by any Purchaser Indemnified Party by reason of, resulting from or arising out of:

(a) any breach by Seller of any representation or warranty made by Seller in Section 4 of this Agreement or any other document executed and delivered by Seller to Purchaser at Closing with respect to the transactions contemplated by this Agreement;

(b) any breach or non-performance by Seller of any covenant or agreement made by Seller in this Agreement or any other document executed and delivered by Seller to Purchaser at Closing with respect to the transactions contemplated by this Agreement;

(c) any imposition (including, but not limited to, imposition by operation of any bulk transfer or other Law) or attempted imposition by a third party upon any of the Purchaser Indemnified Parties of any liability of Seller which is not an Assumed Liability;

(d) any personal injury or property damage alleged to have been caused by or the result of any product produced, sold, distributed or otherwise placed in the stream of commerce by Seller in the Business on or prior to the Closing Date, but not including any Claims solely for product repair or product replacement that arise under, and are made pursuant to and consistent with, the terms of Seller’s standard outstanding warranty obligations (collectively, the “Product Liability Claims”). For purposes of clarification, if a Claim is asserted (orally or in writing) after the Closing Date by a third party solely for product repair or replacement arising under and made pursuant to and consistent with, the terms of Seller’s standard outstanding warranty obligations (a “Warranty Claim”), Seller shall have no obligation to indemnify the Purchaser Indemnified Parties for such Warranty Claim pursuant to this Section 7.1(d);

(e) any brokerage or finders’ fees arising out of the transaction contemplated hereby owing to any party engaged by Seller;

(f) any recall by a third party of a product of such third party which utilizes a product of Seller produced, sold, distributed or otherwise placed in the stream of commerce by Seller in the Business on or prior to the Closing, for purposes of repair or replacement of such product of Seller (a “Product Recall”), but excluding any Warranty Claims;

(g) any liability under the Union Contracts, the National Labor Relations Act, as amended, 29 U.S.C. §§ 151 et seq., or any other Laws relating to labor or employment with respect to the Union Contracts;

(h) any liability under the WARN or similar Law resulting from or arising out of Seller’s violation of Section 5.2(g) hereof; and

(i) the reasonable costs and expenses relating to enforcement of the indemnification rights under this Section 7.1.

7.2 Indemnification by Parent and Purchaser. Subject to the terms hereof, Purchaser and Parent, jointly and severally, agree to defend, indemnify and hold Seller and its directors, officers, Affiliates and Representatives (the “Seller Indemnified Parties”) harmless from and against any Claim asserted against, imposed upon or incurred by any Seller Indemnified Party by reason of, resulting from or arising out of:

(a) any breach by Purchaser of any representation or warranty made by Purchaser in Section 3 of this Agreement or any other document executed and delivered by Purchaser to Seller at Closing with respect to the transactions contemplated by this Agreement;

(b) any breach or non-performance by Purchaser of any covenant or agreement made by Purchaser in this Agreement or any other document executed and delivered by Purchaser to Seller at Closing with respect to the transactions contemplated by this Agreement;

(c) any imposition (including, but not limited to, by operation of Law) or attempted imposition by a third party upon any of the Seller Indemnified Parties of any of the Assumed Liabilities and any liability resulting from or arising out of the conduct of the Business by Purchaser following the Closing, including with respect to the use of the Acquired Assets;

(d) (1) any Product Liability Claim caused by or the result of any product produced or manufactured by Purchaser after Closing, (2) any Warranty Claim outstanding as of the Closing or made after the Closing, and (3) any recall by a third party of a product of such third party which utilizes a product sold, distributed or otherwise placed in the stream of commerce by Purchaser in the Business after Closing (other than any such product that was manufactured by Seller on or before Closing), or manufactured by Purchaser in the Business after Closing;

(e) any injury to or damage to property or persons arising out of any entry onto the Facility by Purchaser, its employees, agents, representatives, contractors, consultants or invitees prior to the Closing Date and any mechanic’s, materialmen’s or laborer’s lien or other lien or claims in connection with the making of such survey, tests, borings or any other activities by the Purchaser;

(f) any liability under any applicable Law resulting from or arising out of the conduct of the Purchaser in collective bargaining with the Union, including without limitation any liability under the National Labor Relations Act, as amended, 29 U.S.C. §§ 151 et seq., and the Labor Management Relations Act, as amended, 29 U.S.C. §§ 185 et seq.;

(g) any liability under any applicable state, federal or local Law resulting from or arising out of the conduct of the Purchaser in connection with its hiring and employment of the Hired Employees or Purchaser’s failure or refusal to hire any Employee in violation of Section 5.2;

(h) any liability under the WARN or any similar Law resulting from or arising out of Purchaser’s violation of Section 5.2(g) hereof;

(i) any brokerage or finders’ fees arising out of the transaction contemplated hereby owing to any party engaged by Purchaser; and

(i) the reasonable costs and expenses relating to enforcement of the indemnification rights under this Section 7.2.

7.3 Determination of Loss. Indemnification pursuant to this Section 7 shall be payable with respect to any Claim described herein as subject to indemnification upon the happening of the earlier of the following:

(a) Resolution of such Claim by mutual agreement of Seller and Purchaser; or

(b) The issuance of a final, non-appealable judgment, award, order or other ruling by a court of competent jurisdiction or arbitration panel.

7.4 Limitations on Indemnification.

(a) Seller shall not have any liability under Section 7.1(a), including Claims solely for breach of any representation or warranty with respect to the Unaudited Financial Information made under Section 8.5 below (“Section 8.5 Warranty Claims”), until the aggregate amount of all Claims described in Section 7.1(a), including Section 8.5 Warranty Claims, exceeds $1,020,000 (the “Threshold Amount”), and then only for the amount by which such Claims exceed the Threshold Amount. Upon reaching the Threshold Amount, Seller shall be liable to the Purchaser Indemnified Parties with respect to Claims described in Section 7.1(a) including Section 8.5 Warranty Claims, in excess of the Threshold Amount up to an aggregate amount of $10,200,000 (the “Cap”). Notwithstanding anything contained herein to the contrary, the limitations set forth in this Section 7.4(a) will not apply to a Claim (i) for a breach of a representation or warranty contained in Section 4.2(a), the first sentence of Section 4.3 and Section 4.5(a), or (ii) for actual (and not constructive) fraud.

(b) Purchaser and Parent shall not have any liability under Section 7.2(a) until the aggregate amount of all Claims described in Section 7.2(a) exceeds the Threshold Amount, and then only for the amount by which such Claims exceed the Threshold Amount. Upon reaching the Threshold Amount, Purchaser and Parent shall be jointly and severally liable to the Seller Indemnified Parties with respect to Claims described in Section 7.2(a) in excess of the Threshold Amount up to an aggregate amount equal to the Cap. Notwithstanding anything contained herein to the contrary, the limitations set forth in this Section 7.4(b) will not apply to a Claim (i) for a breach of a representation or warranty contained in Section 3.1 and Section 3.4, or (ii) for actual (and not constructive) fraud.

(c) All representations and warranties contained in this Agreement, including the representations and warranties as to the Unaudited Financial Information in Section 8.5 below, the Schedules and Exhibits hereto and any agreement, document, instrument or certificate delivered hereunder will survive the Closing for a period of twelve (12) months; provided, however, that (i) a claim for indemnification relating to the representations and warranties in Section 3.1 (other than the first sentence thereof), Section 4.2(a), the first sentence of Section 4.3 and Section 4.5(a) will survive the Closing indefinitely and (ii) a claim for indemnification relating to the representations and warranties contained in Section 4.7 and Section 4.9 must be made with six (6) months after the expiration of the applicable statute of limitations (including extensions). However, as to any breach of, or misstatement in, any such representation or warranty as to which the non-breaching party has given notice to the breaching party on or prior to the expiration of the applicable period, as above set forth, the same will continue to survive beyond said period, but only as to the matters contained in such notice. All covenants and agreements made by a party hereto in this Agreement or in any Transaction Agreement (including, without limitation, the indemnification obligations set forth in this Section) will survive the Closing until fully performed, discharged and satisfied.

(d) To the extent an Indemnifying Party (as defined below) indemnifies any Indemnified Party (as defined below) on any Claim, each Indemnified Party shall assign to the Indemnifying Party, to the fullest extent allowable, their rights and causes of action with respect to such Claim against third parties, or in the event assignment is not permissible, the Indemnifying Party shall be allowed to pursue such Claim in the name of the applicable Indemnified Party, as applicable, at the Indemnifying Party’s expense. The Indemnifying Party shall be entitled to retain all recoveries for its own accounts made as a result of any such action. Each Indemnified Party shall provide, at no expense to themselves, to the Indemnifying Party reasonable assistance in prosecuting such Claim, including making their books and records relating to such Claim available and making their employees available for interviews and similar matters. If an Indemnified Party recovers from a third party any part of any Claim that had been paid by the Indemnifying Party pursuant to its indemnification obligations hereunder, each such Indemnified Party shall promptly remit to the Indemnifying Party the amount of such recovery without regard to the time limitations described in Section 7.4(c).

(e) No Indemnified Party shall be entitled to any indemnity on account of consequential, incidental or indirect damages or losses (unless such damages or losses are asserted against any Indemnified Party by a third party) and, in particular, no “multiple of profits” or other items shall be applied in calculating any indemnity amount.

(f) No Indemnified Party shall have liability for indemnification with respect to any Claim for indemnification that relates to the passing of, or any change in, after the Closing Date, any Law or any accounting policy, principle or practice or any increase in Tax rates in effect on the Closing Date, even if the change or increase has retroactive effect or requires action at a future date.

7.5 Indemnification Procedure.

(a) Third-Party Claims.

(i) Promptly after receipt by a party entitled to be indemnified under this Section 7 (an “Indemnified Party”) of notice of the commencement of any Action for which the Indemnified Party intends to assert a claim for indemnification against the other party (an “Indemnifying Party”) under this Section 7, the Indemnified Party shall give notice to the Indemnifying Party of the commencement of such Action with reasonable promptness (so as to not prejudice the Indemnifying Party’s rights).

(ii) The Indemnifying Party shall be entitled to participate in any Action described in Section 7.5(a)(i) above and, to the extent that it wishes, to assume the defense of such Action with counsel reasonably satisfactory to the Indemnified Party. Following the assumption of defense by an Indemnifying Party, the Indemnifying Party shall not be liable for any subsequent fees of legal counsel or other expenses incurred by the Indemnified Party in connection with the defense of such Action, and the Indemnified Party shall have the right to participate in the defense with its own counsel at its own expense. No compromise or settlement of any claims in an Action shall be binding on an Indemnifying Party for purposes of the Indemnifying Party’s indemnity obligations under this Agreement without the Indemnifying Party’s express written consent. The Indemnifying Party may not compromise or settle any claims in an Action without the Indemnified Party’s express written consent, which shall not be unreasonably withheld, unless the compromise or settlement involves only the payment of money (which is paid by the Indemnifying Party) and does not include any admission of liability by the Indemnified Party.

(iii) A party granted the right to direct the defense of any Action under this Section 7.5 shall (A) keep the other party hereto informed of material developments in the Action, (B) promptly submit to the other parties copies of all pleadings, responsive pleadings, motions and other similar legal documents and papers received in connection with the Action, (C) permit the other parties and their counsel, to the extent practicable, to confer on the conduct of the defense of the Action, and (D) to the extent practicable, permit the other parties and their counsel an opportunity to review all legal papers to be submitted prior to their submission. The parties shall make available to each other and each other’s counsel and accountants all of their books and records relating to the Action, and each party shall provide to the other such assistance as may be reasonably required to insure the proper and adequate defense of the Action. Each party shall use its good faith efforts to avoid the waiver of any privilege of another party. The assumption of the defense of any Action by an Indemnifying Party shall not constitute an admission of responsibility to indemnify or in any manner impair or restrict the Indemnifying Party’s rights to later seek to be reimbursed its costs and expenses if indemnification under this Agreement with respect to the Action was not required.

(b) Other Claims. A claim for indemnification for any matter not involving a third-party claim may be asserted by written notice of the claim, setting forth in reasonable detail the factual and contractual bases for the claim, to the party from whom indemnification under this Section 7 is sought.

7.6 Exclusive Remedy. Except (a) as provided in Sections 2.4 and 5.12, and (b) actual (and not constructive) fraud, this Section 7 sets forth the exclusive remedy owing from Purchaser, Parent or Seller for claims that arise from or are related to this Agreement. Each of the parties hereby waives any other claim, cause of action, or remedy that it might assert against the other, with respect to the matters that arise from or are related to this Agreement, whether under statutory or common Law, any Environmental Law, or securities, trade regulation or other Law. No party shall be entitled to rescind this Agreement following the Closing in the event of a breach of any representation, warranty or covenant made by another party in this Agreement.

8. ADDITIONAL COVENANTS AND AGREEMENTS.

8.1 Expenses. Except as otherwise set forth in this Agreement, each party hereto shall bear and pay all costs and expenses incurred by it in connection with the transactions contemplated by this Agreement, including fees, costs and expenses of its own Representatives. In connection with the purchase of the Owned Real Property, (a) Seller shall pay (i) all applicable real estate transfer taxes and conveyance fees; (ii) that portion of all title insurance costs, including but not limited to, search fees, commitment fees and title insurance premiums for issuance of an owner’s policy pursuant to the title commitment equal to the cost of a title guaranty in the amount of the Purchase Price allocated to the Owner Real Property; (iii) the cost of recording releases or terminations of any mortgages given by Seller or any leases, liens or other encumbrances to be released or terminated by Seller; and (iv) Seller’s customary share of the closing agent’s fees, if any, and (b) Purchaser shall pay (i) the cost of any survey; (ii) that portion of all title insurance costs that exceeds the cost of a title guaranty in the amount of the Purchase Price allocated to the Owner Real Property; (iii) the recording fees for the deed; and (iv) Purchaser’s customary share of the closing agent’s fee, if any.

8.2 Public Releases. Purchaser and Seller shall agree with each other as to the form and substance of any press release related to this Agreement or the transactions contemplated hereby, shall consult with each other as to the form and substance of other public disclosures related thereto, and shall not make any such press release or such other disclosures prior to such agreement or consultation; provided, however, that nothing contained herein shall prohibit any party hereto from making any disclosure which it deems necessary in light of applicable Law, after notice to the other parties with the opportunity to comment, to the extent that delay of the disclosure is permitted under such Law.

8.3 Termination Events. This Agreement may, prior to the Closing, be terminated (i) by Purchaser, if a breach of any provision of this Agreement has been committed by Seller and such breach has not been waived, in writing, by Purchaser or cured by Seller within thirty (30) days of notice by Purchaser to Seller of such breach; (ii) by Seller, if a breach of any provision of this Agreement has been committed by Purchaser and such breach has not been waived, in writing, by Seller or cured by Purchaser within thirty (30) days of notice by Seller to Purchaser of such breach; (iii) by Purchaser, if any of the conditions in Section 6.2 has not been satisfied on or before July 31, 2006, or if satisfaction of such a condition by such date is or becomes impossible (other than through the failure of Purchaser to comply with its obligations under this Agreement) and Purchaser has not waived such condition on or before the Closing Date; (iv) by Seller, if any of the conditions in Section 6.3 has not been satisfied on or before July 31, 2006, or if satisfaction of such a condition by such date is or becomes impossible (other than through the failure of Seller to comply with their respective obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date; (v) by either the Seller or Purchaser if any Governmental authority shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or (vi) by mutual written consent of Purchaser and Seller.

8.4 Effect of Termination. Each of Purchaser’s and Seller’s right of termination under Section 8.3 is in addition to any other rights such party may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 8.3, all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 7.2(e) (“Indemnification by Purchaser”) and 8.1 (“Expenses”) and the Confidentiality Agreement will survive; provided, however, that if this Agreement is terminated by a party because of the breach of the Agreement by the other party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the other party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

8.5 Unaudited Financial Statements.

(a) To the extent information is reasonably available and as soon as reasonably practicable following the Closing Date, but not later than 30 days after the Closing Date, Seller shall deliver to Purchaser (i) unaudited balance sheets of the Business as of the end of the years ended December 31, 2003, 2004 and 2005 and (ii) unaudited statements of operations and cash flows for the Business for the years ended December 31, 2003, 2004 and 2005 (collectively, the “Unaudited Financial Information”).

(b) Purchaser understands that information may not be available to create complete statements of operations, balance sheets and statements of cash flows in accordance with GAAP as the Business was accounted for as an operational unit and no separate GAAP financial statements (income statement, balance sheet and statement of cash flows) were maintained other than for operational purposes which may include allocations of certain amounts and balances not in accordance with GAAP. Nevertheless, Seller will use commercially reasonable efforts to prepare and deliver the Unaudited Financial Information in accordance with GAAP. In addition, certain support and detail may not be available for all amounts or balances for all years.

(c) Seller will use commercially reasonable efforts to prepare the Unaudited Financial Information in a form reasonably acceptable to Purchaser based on Purchaser’s SEC reporting requirements. If the SEC requires all or any part of the Unaudited Financial Information to be reported by Purchaser in the form of audited statements, Seller will use commercially reasonable efforts to provide Purchaser all information reasonably necessary to enable Purchaser to prepare such audited statements, all at Purchaser’s expense. To the Actual Knowledge of Seller, subject to Section 8.5(b) above, the Unaudited Financial Information fairly presents, in all material respects, the financial condition of the Business at the dates thereof and the results of operations of the Business for the periods then ended.

(d) Seller will provide Purchaser and its Independent Registered Public Accounting Firm with customary and reasonable assistance as may be requested by Purchaser in connection with the audit of the Unaudited Financial Information conducted on behalf of Purchaser, including, without limitation, access at all reasonable times to Seller’s personnel, properties, books and records of or related to the Business and in the employ or possession, as applicable, of Seller. Customary and reasonable assistance will include the delivery by Seller of a properly executed management representation letter, in a customary format to be mutually agreed, to Purchaser’s Independent Registered Public Accounting Firm. In addition, to the extent Purchaser requests partial relief from applicable reporting requirements of the Securities and Exchange Commission with regard to the nature of the audited financial statements of the Business to be filed, Seller agrees to cooperate with said process and provide applicable documentation as may reasonably be deemed necessary.

(e) To the extent that Seller requires the assistance of actuaries or outside accountants to prepare financial information for Purchaser’s filing requirements to the SEC, Purchaser will pay for all such assistance.

9. MISCELLANEOUS.

9.1 Entire Agreement. Except for the Retiree Medical, Pension and Union Related Agreements and the Confidentiality Agreement, dated September 13, 2005, as amended, executed by Purchaser and Seller, this Agreement (including all Schedules, Exhibits and other documents executed and delivered pursuant hereto) supersedes any and all other agreements, oral or written, among the parties hereto with respect to the subject matter hereof, and contains the entire agreement among the parties with respect to the transactions contemplated hereby.

9.2 Amendments; Waiver. This Agreement may be amended, modified, superseded or canceled and any of its provisions may be waived only by a written instrument executed by both of the parties or, in the case of a waiver, by or on behalf of the party waiving compliance. The failure of any party at any time to require performance of any provision of this Agreement shall in no manner affect the right of that party at a later time to enforce the same or a different provision. No waiver by either party of any condition or of any breach of any provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or of any breach of the same or a different provision. If any party expressly waives in writing an unsatisfied condition, representation, warranty, undertaking, covenant or agreement (or portion thereof) set forth herein, the waiving party shall thereafter be barred from recovering, and thereafter shall not seek to recover, any Claims from the other parties in respect of the matter or matters so waived.

9.3 Successors; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted transferees and assignees. Neither this Agreement nor any interest herein may directly or indirectly be transferred or assigned by any party, in whole or in part, without the written consent of the other parties.

9.4 Notices. Any notice, request, demand or other communication to be given pursuant to the terms of this Agreement must be in writing and shall be deemed to have been duly given on the day it is delivered by hand, on the day it is sent by facsimile with confirmation of receipt by the transmitting facsimile machine, on the next business day after it is sent by a nationally recognized overnight mail service (delivery charge prepaid), or on the third business day after it is mailed first class, postage prepaid, in each case to the following addresses:

If to Seller:

Continental Tire North America, Inc.

1800 Continental Boulevard

Charlotte, North Carolina U.S.A. 28273

Fax (704) 583-3935

Attn: Tim Rogers, Vice President, Finance

and: Rick J. Holcomb, Esq.

with copies to:

George R. Jurch III, Esq.

One Continental Drive

Auburn Hills, Michigan U.S.A. 48326-1581

Fax (248) 393-8722

and

Calfee, Halter & Griswold LLP

1400 McDonald Investment Center

800 Superior Avenue

Cleveland, Ohio 44114

Attention: Robert A. Ross, Esq.

Facsimile: (216) 241-0816

If to Purchaser or to Parent:

Titan Tire Corporation of Bryan

2345 East Market Street

Des Moines, Iowa 50317

Attention: Maurice M. Taylor, Jr.

Facsimile: (217) 228-3166

with copies to:

Cheri T. Holley

General Counsel

Titan International, Inc.

2701 Spruce St.

Quincy, IL 62301

Facsimile: (217) 228-3040

and

Bodman LLP

6th Floor At Ford Field

1901 St. Antoine St.

Detroit, Michigan 48226

Attention: Robert J. Diehl, Jr.

Facsimile: (313) 393-7579

or to such other address or to such other person as any party shall have last designated by written notice provided to the other parties in the manner set forth in this Section.

9.5 Severability. If any provision of this Agreement or any application thereof shall be invalid or unenforceable, the remainder of this Agreement and any other application of such provision shall not be affected thereby.

9.6 No Third Party Beneficiary. This Agreement is for the benefit of, and may be enforced only by, Seller and Purchaser and their respective successors and permitted transferees and assignees, and is not for the benefit of, and may not be enforced by, any third party.

9.7 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Ohio without regard to conflict of law principles.

9.8 Counterparts. This Agreement may be executed in two or more counterparts and by the parties on separate counterparts, all of which shall be considered one and the same instrument, and each of which shall be deemed an original. Each of the parties hereto (i) has agreed to permit the use, from time to time, of faxed or otherwise electronically transmitted signatures in order to expedite the consummation of the transactions contemplated hereby, (ii) intends to be bound by its respective faxed or otherwise electronically transmitted signature, (iii) is aware that the other parties hereto shall rely on the faxed or otherwise electronically transmitted signature, and (iv) acknowledges such reliance and waives any defenses to the enforcement of the documents effecting the transaction contemplated by this Agreement based on the fact that a signature was sent by fax or otherwise electronically transmitted.

9.9 Headings; Construction. The headings of the sections and paragraphs in this Agreement have been inserted for convenience of reference only and shall not restrict or otherwise modify any of the terms or provisions of this Agreement. Unless otherwise expressly provided, the words “including” or “includes” whenever used in this Agreement do not limit the preceding words or terms. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

9.10 Certain Information. Neither the specification of any dollar amount in the representations and warranties contained in this Agreement nor the inclusion of any item in any Schedule to this Agreement is intended, or will be construed or offered in any dispute between the parties, as evidence of, the material nature of such dollar amount or item, nor shall it establish any standard of materiality upon which to judge the inclusion of any other items in any Schedules to this Agreement. The information contained in this Agreement and the Schedules to this Agreement is disclosed solely for the purposes of this Agreement, and no information contained herein or therein shall be deemed to be an admission by any party to any Person of any matter whatsoever, including of any violation of Law or breach of any contract.

9.11 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against either party.

9.12 Further Assurances. Seller and Purchaser will reasonably cooperate with each other and cause their respective directors, officers and employees to cooperate with those of Purchaser or Seller, as applicable, in furnishing information, and other assistance as may be reasonably requested by Purchaser or Seller, as applicable, resulting or arising from the transactions contemplated by this Agreement or any of the Transaction Agreements, or any fact, situation, circumstance, status, condition, activity, practice, failure to act or transaction relating to the Business. The party requesting such assistance will pay or reimburse the other party for all reasonable out-of-pocket expenses incurred by the party providing such assistance.

10. CERTAIN DEFINITIONS.

10.1 Definitions. For purposes of this Agreement, the following capitalized terms shall have the meanings given to them below, and all other capitalized terms used in this Agreement that are not defined in this Section 10.1 but defined elsewhere in this Agreement shall have for purposes of this Agreement the meanings set forth elsewhere in this Agreement:

“Action” means any action, suit, complaint, claim, counter-claim, petition, set-off, inquiry, investigation, administrative proceeding, arbitration, or private dispute resolution proceeding, whether at law, in equity, by contract or agreement, or otherwise, and whether conducted by or before any Government, any Forum, or other Person.

“Actual Knowledge” shall mean the current actual individual knowledge (without any duty of inquiry of any other Person) of Paul Hawkins, Jim Houston, Steve Newell and Keith Tarnovich.

“Agreed Rate” means the one (1) month USD-LIBOR rate in effect as of the Closing Date plus 50 basis points.

“Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with the former Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Business” means the business of Seller and, to the extent applicable, Seller’s Affiliates relating to the manufacturing and production of “Off-the-Road” tires and related products (bladders, etc.) at the Facility and the sale of such tires and related products to customers worldwide, but shall not include any of the business of certain of Seller’s Affiliates relating to the manufacturing and production of “Off-the-Road” tires and related products at the South African facility and at the Malaysian facility and, subject to the Trademark License Agreement, the sale of such tires and related products from such facilities worldwide.

“Code” means the Internal Revenue Code of 1986, as amended.

“Employee” or “Employees” means those persons employed by Seller or an Affiliate of Seller immediately prior to the Closing Date and dedicated exclusively to the operation of the Business, including, without limitation, any such Persons on an approved leave of absence as of the Closing Date or similar absence requiring recall rights.

“Environmental Law” means any and all applicable Laws in effect as of the date of this Agreement relating to pollution or protection of human health or the environment.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” means, together with any employer, an entity required under Code Section 414 to be treated as a single employer with such employer.

“Facility” means Seller’s facility located in Bryan, Ohio, at which the Business is conducted.

“Former Employee” or “Former Employees” means those persons formerly employed by Seller or any Affiliate of Seller exclusively in connection with the Business who terminated employment associated with the Business, whether by retirement or otherwise, and their dependants.

“Forum” means any federal, state, local or municipal court, governmental agency, administrative body or agency, tribunal, private alternative dispute resolution system, or arbitration panel.

“GAAP” means United States generally accepted accounting principles.

“Government” means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision.

“Hazardous Material” means any pollutant, contaminant, toxin, petroleum or petroleum by-product, asbestos or material containing friable asbestos, polychlorinated bi-phenyl, pesticide, flammable, explosive or radioactive material, hazardous material, including, but not limited to, any solid waste or hazardous waste or substance or material defined in or regulated pursuant to any Environmental Law.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“IFRS” means International Financial Reporting Standards as applied by Seller.

“Law” means all federal, state, local or municipal constitutions, statutes, rules, orders, regulations, ordinances, acts, codes, legislation, conventions and similar laws and legal requirements, as in effect on the date of this Agreement.

“Lien” means any mortgage, pledge, hypothecation, security interest, encumbrance, lien or charge of any kind, however evidenced or created, but excluding any of the foregoing (i) for water, sewage and similar charges and current Taxes and assessments not yet due and payable or being contested in good faith, (ii) relating to mechanics’, carriers’, workers’, repairers’, materialmen’s, warehousemen’s and other similar liens arising or incurred in the Ordinary Course of Business of the Business, (iii) arising or resulting from any action taken by Purchaser or its Affiliates, (iv) relating to easements, rights of way, restrictions and other similar liens that do not materially interfere with the ordinary conduct of operations, (v) relating to imperfections or defects in title that do not materially adversely affect the value or use of the applicable asset, (vi) consisting of purchase money security interests created in the Ordinary Course of Business, (vii) arising under Law in favor of landlords, and (viii) to which Purchaser consents in writing.

“Material Adverse Effect” means an actual, material adverse effect on the financial condition of the Business considered as a whole, but shall be deemed to exclude (i) any changes resulting from general economic, regulatory or political conditions, (ii) circumstances that affect the industries in which the Business operates generally, or (iii) any changes resulting from the announcement or pendency of the transactions contemplated by this Agreement.

“Off-Site Location” means any real property other than the Owned Real Property; provided, however, that Off-Site Location shall not include any real property contiguous with the Owned Real Property where any Hazardous Material is or comes to be present at, on or under such real property as a result of having migrated from the Owned Real Property.

“Ordinary Course of Business” means an action taken (in compliance with applicable Laws) by a Person that is consistent with the past practices of such Person or the industry practice and is taken in the ordinary course of the normal day-to-day operations of such Person.

“Person” means and includes an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated association or organization, and a Government.

“Plan” means any plan, policy or arrangement maintained or contributed to by Seller (excluding any multiemployer pension plan within the meaning of ERISA Section 3(37)) on behalf of the Employees.

“Representative” means with respect to a particular Person, any director, officer, manager, member, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, lenders, accountants and financial advisors.

“Seller’s Knowledge” shall mean the current actual knowledge (after reasonable inquiry) of Paul Hawkins, Jim Houston, Steve Newell and Keith Tarnovich.

“SPT” shall mean the Steelworkers Pension Trust.

“Taxes” shall mean all income, gross receipts, profits, real property, real property assessments, assessments both general and special, personal property, sales, use, customs, duties, franchise, value added, ad valorem, withholding, employees’ income withholding, occupation, transfer, payroll, employment, excise, environmental (including any taxes under Section 59A of the Code), registration, license, severance, stamp, premium, windfall profits, capital stock, social security (or similar), unemployment, disability, Medicare, alternative or add-on minimum, estimated and any other taxes of any nature whatsoever imposed by any Government, together with any interest, penalties or additions to the tax imposed with respect thereto, and any obligations under any agreement or arrangement with respect to the foregoing taxes.

“Transaction Agreements” shall mean, collectively, the Trademark License, the Compound Supply Agreement, the Know-How License, the Transition Services Agreement, the Raw Materials Supply Agreement, the Bead Supply Agreement, the Steel Fabric Supply Agreement and the Master Distributorship Agreement.

“Union” shall mean the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC and its Local Union No. 890L, collectively.

“Union Contracts” shall mean the December 7, 1999 - December 10, 2006, collective bargaining agreement and December 7, 1999 - December 10, 2006, pension and insurance agreement between Seller and the Union covering represented Employees at the Facility.

“VEBA” shall mean the Titan Tire Corporation Voluntary Retiree Benefit Trust.

EX-31.1 3 ex31_1.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302

Exhibit 31.1

CERTIFICATION

I, Maurice M. Taylor Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	October 27, 2006	By:	/s/ MAURICE M. TAYLOR JR.
			Maurice M. Taylor Jr.
			Chairman of the Board of Directors and Chief Executive Officer

EX-31.2 4 ex31_2.htm CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302

Exhibit 31.2

CERTIFICATION

I, Kent W. Hackamack, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	October 27, 2006	By:	/s/ KENT W. HACKAMACK
			Kent W. Hackamack
			Vice President of Finance and Treasurer
			(Principal Financial Officer)

EX-32 5 ex32.htm CERTIFICATION PURSUANT TO SECTION 906 CERTIFICATION PURSUANT TO SECTION 906

Exhibit 32

CERTIFICATION

In connection with the Quarterly Report of Titan International, Inc. on Form 10-Q for the period ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies that, to the best of their knowledge, this Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

	TITAN INTERNATIONAL, INC.
	(Registrant)

Date:	October 27, 2006	By:	/s/ MAURICE M. TAYLOR JR.
			Maurice M. Taylor Jr.
			Chairman of the Board of Directors and Chief Executive Officer

		By:	/s/ KENT W. HACKAMACK
			Kent W. Hackamack
			Vice President of Finance and Treasurer
			(Principal Financial Officer)

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